Executing the StrategyLearning ObjectivesAfter reading.docx

Executing the Strategy
Learning Objectives
After reading this chapter, you should be able to:
• Distinguish good operational plans from weak ones.
• Detail the value of tracking progress on all operational plans.
• Discuss why emergent strategies occur and how they might
affect an organization’s
current strategy.
• Implement the ten basic steps of a generic strategic
formulation process.
• Manage, improve, and evaluate an existing strategic
management process.
Chapter 9
Neil Webb/Ikon Images/Getty Images
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CHAPTER 9Section 9.1 Managing Operational Plans
Implementing a strategy (see Figure 1.1) in the real world is not
a leisurely swim across
a calm pond on a sunny day, but rather like crossing from one

bank of a raging river to
the other, encountering hidden eddies, fog, driving rain,
lightning, and riptides along the
way. While it is not impossible to reach the other bank (the
goal), the task often becomes
one of overcoming obstacles and making constant adjustments
without losing sight of the
goal. Implementation is like that. Even the most brilliant
strategy is worthless if it cannot
be implemented.
This chapter focuses on strategy execution and its difficulties.
Part of the chapter is devoted
to assessing, improving, and managing the strategy formulation
process itself.
9.1 Managing Operational Plans
The process for obtaining board approval of operational plans is
covered in this chapter.
Exactly what is it that gets approved? An operational plan is a
document that specifies the
projects or tasks that must be accomplished to achieve
particular operational objectives.
Many of these plans will contain activities that are ongoing.
Some will include plans for
enhanced or new services. Details specified in operational plans
include the names of those
who will be involved and the indi-
vidual responsible for each one, what
equipment will be needed, when each
will start and end, and the estimated
costs for each activity. Given the level
of detail required, it should come as
no surprise that an operational plan
for a large functional unit, such as the

nursing department in a hospital, can
run to many pages, as there are lots of
activities to be detailed. Operational
plans for small HSOs such as physi-
cian clinics and community health
centers may be just a few pages long
unless new strategic initiatives are to
be undertaken.
It takes contributions from everyone
who will be involved in that HSO’s
operations to create such plans. They
will make sure that continuing cur-
rent operations are included in the plans, which is easily done.
What adds a level of com-
plexity and difficulty is incorporating additional tasks
demanded by a change in strategy.
Consider the following scenarios, which illustrate the difficulty
in creating operational
plans that involve more than simply repeating what was done
the previous year:
Javier Larrea/age fotostock/Getty Images
Continuing current operations will be included in the
operational plans, which is not difficult to do. What adds
a level of complexity is incorporating additional tasks
demanded by a change in strategy.
spa81202_09_c09.indd 248 1/16/14 10:08 AM

• Increased patient volume. A higher level of productivity is
required to satisfy
increased patient demand or the HSO must expand its capacity.
Can the
increased capacity requirement be met by adding additional
shifts, physically
expanding the size of the facility, or building a new facility?
How many new
pieces of equipment and supplies will be needed and of what
kind? How many
new people must be hired and trained, and how long might all of
this take?
Also, consider the scenario where a whole new service line will
be added and
patients receiving this new service must be cared for in addition
to caring for
existing patients. How can this best be accomplished? In both
scenarios, patient
care capacity has to be increased through either improved
efficiencies or growth.
• Market expansion. The decision to expand from being a local
HSO to a regional
one presents a host of operational challenges. Should the
organization continue
to oversee patient care services in these other locations or find a
joint venture
partner? How many new facilities will it need to reach this
expanded market?
Which specific parts of the region should be targeted first,
second, and so on
until the organization covers all of its targeted areas? What
advertising media
would be most appropriate to introduce services into new areas?
Should empha-
sis be placed on marketing to physicians or is direct consumer

marketing the
best? How can this market expansion be realized most
expediently?
• Finance. Consider two scenarios: In the first, the organization
has decided to
invest in either a new integrated information system or a
significant enhance-
ment of the existing one. How many more information
technology specialists
will be required? Without intimate knowledge of the completed
system, how
can creating it be planned for? Should a consulting firm with
the requisite
experience be engaged? Will training specialists need to be
hired to teach people
how to use the system functions? In the second scenario, the
HSO’s cash needs
for the coming year exceed what it can normally access. How
can it raise more
cash? Should receivables be factored? Should a larger line of
credit be negoti-
ated? Should payables be delayed? Is grant funding available?
Is there a way to
maintain negative working capital to free up the most cash?
Ideally, the HSO has been working on these kinds of changes
over a longer period, using
the formal operational planning time at the end of each fiscal
year to finalize its plans and
match available resources before the new fiscal year begins.
And its plans must be done in
some sort of networked way or using Gantt charts to show
which projects or tasks can be
done independently of others and which are integral to a
particular sequence.

A Gantt chart is a type of bar chart that graphically depicts a
project schedule. Gantt charts
indicate the start and finish dates of each component of a
project and can be used to show
how much of the component has been completed as well as
when it was completed (see
Figure 9.1). Some Gantt charts also reveal the dependency
relationships between compo-
nent activities; that is, the dependency of one activity upon the
completion of another is
indicated. Gantt charts can also be combined with PERT
network software (see Chapter 8)
to produce an ideal timeline for completing project activities.
spa81202_09_c09.indd 249 1/16/14 10:08 AM
Figure 9.1: Example of a Gantt chart
Gantt charts indicate the start and finish dates of each
component of an operational project.
When that is done, the total plans for a particular unit should be
summarized according to
the review period set by the organization. Typically, this is each
month. The review cannot
begin until all the requisite data have been collected and
organized, which usually takes
a week after the end of the month. Actual results are then
compared to the plan (expected
performance and budget) along the following dimensions:

• For each project completed during the period, data show
whether the objective
was achieved, current and total costs, and whether the deadline
was met.
• For each ongoing project, data show progress toward
achieving the objective,
current and cumulative costs, and a probability that the deadline
will be met.
The project leader initially does such a review, with copies
given to middle managers on
up to functional heads. If the data are entered into a computer
system, then those manag-
ers will all have access to monthly summaries.
Case Study: Managing the Operational Plan for a New Facility
describes how a hospital
might have created an operational plan for adding a new
outpatient facility, including
identifying the tasks to be completed and who was assigned
responsibility for complet-
ing the tasks.
Task 5
Task 4
Task 3
Task 2
Task 1
8/10/2012 2/26/2013 9/14/2013 4/1/2014 10/18/2014 5/6/2015
11/22/2015

CompletedStart Date: Remaining
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In October 2012, the Clearwater Hospital board of trustees
approved a project involving the addi-
tion of a for-profit sports medicine and rehabilitation facility
(SMRF). The facility was intended to
contribute to the organization’s strategic objective of growing
the business. Revenue for inpatient
admissions had been declining due to several factors out of the
organization’s control. The board
agreed that future revenue growth would need to come from
other services such as the SMRF. Not
only would the facility generate a profit for the organization,
but it would also increase referrals to
existing outpatient therapy programs and potentially increase
hospital admissions.
An operational plan for the SMRF was created by the steering
committee overseeing the project.
Using mind mapping, the committee members brainstormed
answers to the following questions:
• What will be the major project deliverable?
• What tasks must be done to complete these deliverables?
• What might go wrong if we implement the project in this way
(with these tasks)?

(Iranmanesh & Madadi, 2008, p. 331)
These discussions resulted in the creation of a list of tasks and
subtasks to be completed through-
out the life of the project. This list served as an outline for the
project and assisted in project con-
trol. The following is a list of the tasks and the person
responsible for completing the task. Many
individuals were called upon to help the responsible individuals
complete their charges.
Task Responsible individual
1. Develop budgets for each area of the project Chief financial
officer
2. Purchase land for facility Construction project manager
3. Identify industry standards and government regulations
pertaining to building and practices
Chief operations officer
4. Design building Chief operations officer
5. Manage building construction project Construction project
manager
6. Develop management structure Chief operations officer
7. Define what sports medicine and rehabilitative services
should be offered to clients based on their expected needs
Rehab services medical director
8. Define and oversee purchase of equipment and supplies

Rehab services administrative
director
9. Define needs for food services, housekeeping, staffing,
and policy/procedure development
Rehab services administrative
director
10. Define telecommunications and information system
needs for facility
Information services director
11. Develop operating budget for facility Chief financial officer
12. Create payroll and accounting system for facility Chief
financial officer
13. Create preliminary marketing and communication plan VP
of business development
14. Set up telecommunications and information systems
for facility
Information systems director
(continued)
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CHAPTER 9Section 9.2 Tracking Performance Using Metrics

(continued)
A Gantt chart was created for each task showing the subtasks
and expected start and completion
times. As the project progressed, the Gantt charts allowed the
steering committee to see if plans
were moving ahead as expected and what subtasks were falling
behind schedule.
Discussion Questions
1. Clearly, it is much tougher to translate a change in strategy
into operational plans than it is
to continue with an established strategy. In your opinion, is it
acceptable to submit a plan
that is full of uncertainties? Explain your point of view.
2. Can you think of anything else that should be part of a good
operational plan?
3. Now that you know more about what is involved in coming
up with a good operational plan,
do you believe that strategy formulation should be done solely
by top management?
4. To what extent, if any, does experience in formulating
strategy help an operational manager
develop operational plans to support the organization’s
strategies?
5. To what extent should managers be aware of what’s going on
in other parts (e.g., functions)
of the organization while preparing operational plans?
6. If quality or effectiveness of a project is important, how can
these be incorporated into an

operational plan? Or should a separate project be developed to
assess those attributes,
requiring additional expenditures?
9.2 Tracking Performance Using Metrics
Two old adages underscore why the use of metrics is so vital in
organizations:
• “What gets measured gets managed.”
• “You can’t improve what you can’t measure.”
By way of illustration, consider the example of a hospital that
provided educational work-
shops for high school students in an effort to reduce the rate of
sexually transmitted dis-
eases (STDs) in the area around the city in which it operated.
To determine how well this
initiative was doing, they kept records of student attendance at
every workshop they
gave, the number of workshops each week and at which school,
who gave the workshops,
and the content of each workshop. In other words, what they
said they were going to do
was measured and reported to the CEO. But how effective were
the workshops? What
was the purpose for developing and giving them? Did the teen
STD rate decline over the
couple of years this hospital was giving its workshops? If the
rate did decline (a statistic
that hadn’t been measured), was it because of the workshops? If
the rate did not decline,
was the program a failure or was it simply bucking an upward
trend line?
Tetra Images/SuperStock

The more systematic and reliable the method for
measuring performance, the more credible the
data will be in supporting strategic plans and their
implementation.
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Clearly, like many other organiza-
tions, this hospital measured what is
easy to measure but not what needed to
be measured. Unfortunately, those in
charge of implementing operational
plans may not know what needs to
be measured, or they may lack the
resources necessary to gather the
data. To obtain any meaningful eval-
uation of the quality and effective-
ness of its educational workshops,
the hospital in this example might
have partnered with an organiza-
tion that was engaged in monitoring
the prevalence or incidence of STDs
among teenagers in the community.
The statistical rate of STDs before
the workshops were given could be
compared to statistics after the 2-year
period. Gathering statistics within
each school where the workshops were held would have been
another option. There are
many ways to measure performance, but the more systematic
and reliable the method is,
the more credible the data will be in supporting strategic plans

and their implementation.
Organizations mistakenly measure whether activities are
occurring as planned, not pro-
gressing toward achieving objectives. Although getting tasks
done is important, progress
evaluation is critical to strategic management. Evaluating
progress at numerous stages
throughout implementation allows the manager and his or her
team to make adjustments
and modifications to the strategy. For instance, if the hospital
had monitored data on STD
rates among high school students in the city and found that rates
were not dropping,
modifications to the educational strategy could have been made.
Operational objectives, discussed in Chapter 8, must be set
carefully. Making good prog-
ress toward objectives that were set too low is of little value
and will not implement the
strategy properly. Setting them too high demotivates the
workforce and is just as bad. So
let us presume that “stretch” objectives—set at just the right
level but demanding a little
more from everyone to achieve—have been set all the way down
the line, plans were
devised for every unit that matched its budget allocations, and
these plans are now being
carried out by everyone in the organization. How does top
management monitor whether
everything is “on track” or “on plan”?
The manager’s job is to collect and organize current project
data for the review period, by
project, in his or her respective areas of responsibility. The
example shown in Figure 9.1

is a step in the right direction but has to be summarized for the
month. For example, the
figure shows an almost instantaneous picture for daily
monitoring, a time frame and level
of detail required only by the people actually doing the work.
From such daily reports
9.2 Tracking Performance Using Metrics
Two old adages underscore why the use of metrics is so vital in
organizations:
• “What gets measured gets managed.”
• “You can’t improve what you can’t measure.”
By way of illustration, consider the example of a hospital that
provided educational work-
shops for high school students in an effort to reduce the rate of
sexually transmitted dis-
eases (STDs) in the area around the city in which it operated.
To determine how well this
initiative was doing, they kept records of student attendance at
every workshop they
gave, the number of workshops each week and at which school,
who gave the workshops,
and the content of each workshop. In other words, what they
said they were going to do
was measured and reported to the CEO. But how effective were
the workshops? What
was the purpose for developing and giving them? Did the teen
STD rate decline over the
couple of years this hospital was giving its workshops? If the
rate did decline (a statistic
that hadn’t been measured), was it because of the workshops? If
the rate did not decline,
was the program a failure or was it simply bucking an upward
trend line?

Tetra Images/SuperStock
The more systematic and reliable the method for
measuring performance, the more credible the
data will be in supporting strategic plans and their
implementation.
spa81202_09_c09.indd 253 1/16/14 10:08 AM
and the status of projects at the end of the month, a manager
would need to extract and
summarize information on each major project, being careful to
note which projects were
on schedule and under budget and which were not and by how
much. The latter could
constitute a separate “exception” report of negative variances
(discussed in more detail
later), which are projects that have slipped their schedules or
are over budget, together
with additional information on how much extra it might cost to
get all of them back to
meeting their deadlines. Time sampling, evaluations at fixed
regular intervals of time,
could be done as a double check to confirm the accuracy of
status reports.
Control Systems
A control system is a mechanism that allows management to
compare actual performance
to an expectation, measure the variance, take action to reduce

the variance, reset or update,
and test again.
One of the hallmarks of a good control system is that corrective
action is taken as soon as
it is found to be needed. Why wait until the end of the year to
discover that you have gone
over budget? At the other end of the scale, should you check
every week? That may make
no sense, either. Monthly checking is probably about right
unless HSO leaders or health-
care regulators want more frequent checks. Keep in mind that
these guidelines are gen-
eral rules. In certain locales, weekly strategic checks are
necessary to fulfill government
regulations, but such stringent oversight is not always required.
Regardless of when and
how often checks are performed, most information systems can
provide reports, either as
needed onscreen or in a customized format sent to all
operational managers.
Case Study: Measuring Progress Toward Improving Patient
Satisfaction describes the control
system used by a hospital involved in a strategic project aimed
at improving patient satis-
faction in its emergency department.
Satisfaction
The patient satisfaction scores for emergency department (ED)
services at a hospital in the Mid-
west were consistently low. During strategy formulation, the
hospital’s leadership identified this as
a critical strategic issue because low patient satisfaction was

harming the hospital’s reputation in
the community. This led to the creation of an operational plan
for improving these scores.
A project manager from the ED was selected to coordinate the
improvement plans. Several steps
were taken to change the way emergency services were
delivered, including communicating more
effectively with patients and family members, changing the
staffing schedule to better cover times
of peak patient load, and revisions to the admissions and triage
process.
(continued)
spa81202_09_c09.indd 254 1/16/14 10:08 AM
Satisfaction (continued)
Each month, patient satisfaction survey results
were shared with managers, physicians, and staff
to assess progress toward achieving the goal of 80%
overall satisfaction with emergency services (80%
of the ratings should be a 4 or 5 in the 5-point rat-
ing scale, with 5 being the highest). In addition, the
percentage of ratings that were 4 or 5 for individ-
ual questions on the survey were monitored each
month. Below are the data reported each month to
the hospital and emergency department leadership
and staff.

Percentage of patients who rated these questions as
a 4 (somewhat satisfied) or 5 (very satisfied):
• Overall rating of the ED
• Urgency shown
• Coordination of care and services
• Explanation of new medicines
• Doing everything for pain
• Comfort asking questions
• Informing patients about delays
• Doctors caring about patients
• Time doctors spent with patient
• Doctors’ overall rating
• Amount of time in ED
• Discharge instructions
When target rates are not achieved, the ED project manager
meets with people in the ED to iden-
tify barriers and develops plans for overcoming these barriers.
The improvement project will be
deemed successful when the “overall rating” and all individual
component scores achieve the 80%
goal for four consecutive quarters. Quarterly monitoring will be
continued with a status report to
the hospital’s leadership council provided on a semi-annual
basis.
OJO Images/SuperStock
Overall patient satisfaction is an important
measure of quality for emergency department
services.
A common control system is the budget. Action is taken only if
expenses exceed the bud-
get. Further, cumulative expenses are compared to cumulative

budgets so that an opera-
tional unit that has overspent one month can “make up” and
spend less than its budget in
the following month. This budgetary control mechanism is
illustrated in Figure 9.2. Note
that in addition to monitoring cumulative expenses, operational
units often track spend-
ing in each budget category.
spa81202_09_c09.indd 255 1/16/14 10:08 AM
Figure 9.2: Budgetary control system
The budgetary control system allows management to compare
actual performance to a standard, mea-
sure the variance, take action to reduce the variance, reset or
update, and test again.
Addressing Negative Variances
Managers in well-run organizations make a point of meeting
with their direct reports
regularly to go over progress and discuss any problems. One
focus of the meeting should
be variances and any exception reports that detail differences
between plans or standards
and actual performance. A negative variance is an instance
where a project’s progress is
delayed and could miss a deadline, or where its budget has been
exceeded, or where per-
formance comes up short of a quantitative standard or
expectation.

Typically a
monthly cycle
Target
Actual
Variance
Action
Update
Cumulative budget
Cumulative expenses
Update cumulative budget
and cumulative expenses
Over budget On budget orunder budget
Reduce expenses
next month
Continue as
planned
spa81202_09_c09.indd 256 1/16/14 10:08 AM
What can be accomplished in such a meeting between a manager

and a direct report?
First, the manager should learn about the particular
circumstances surrounding negative
variances of some projects, what might have caused the delays
or budget overruns, and
which other projects might be in jeopardy as a result. They
should ask questions and listen
carefully to the responses. Both the manager and direct report
should note questions to
which an answer could not be provided because the direct report
didn’t have the neces-
sary information.
Second, the manager and direct report should discuss potential
solutions to the negative
variances. Some projects can be pulled back on track through
the direct report getting
project personnel to acknowledge problems and solve them,
helping them to find solu-
tions, or trying to remove obstacles that might be delaying
progress. Also, if budgets are
overrun, a new lower budget that compensates for the overrun
must be communicated to
project personnel. The manager should focus on projects where
there is a direct relation-
ship between schedule and budget, that is, where speeding them
up will cost more, and
conversely, where reducing the budget results in unacceptable
delays. It is in precisely
such situations that any critical-path software becomes
invaluable, because it lets a project
leader or supervisor try out different alternatives until both
parameters (project time and
budget) meet expectations.
Third, the manager should insist

that the direct report file—within the
next couple of days—a revised plan
containing the points that were dis-
cussed that will bring projects and
budgets back in line. Finally, meet-
ings represent an opportunity for the
manager to strengthen a relationship
with the direct report. In most cases,
the meeting is just between the two of
them (although inviting other project
managers who are in a better posi-
tion to provide explanations is also
common). What is the direct report
most worried about? Is the commu-
nication between them as “open” as
it needs to be? What’s really going
on? Taking the time to delve a little
deeper and offer guidance and coun-
seling is often well worth it.
© Andrei Kiselev/Hemera/Thinkstock
Sometimes face-to-face discussions are needed to ensure
that everyone in the HSO follows through in meeting
operational objectives.
spa81202_09_c09.indd 257 1/16/14 10:08 AM
Be mindful of a couple of potential red flags: Some managers
do not like hearing or deal-
ing with bad news and might even tell their reports they do not
want to hear it. So if a

supervisor is repeatedly told that “everything is okay,” he or
she might well suspect that it
is not. The manager will have to dig deeper and even go to chat
informally with the direct
report’s colleagues and team members. A manager also needs to
be sensitive to whether
a direct report is losing control of the team or his or her
responsibilities. If the employee
feels overwhelmed and relatively powerless to stem the tide, a
real problem exists.
This kind of face-to-face meeting with a direct report goes on
up and down the hierarchy.
Typically, a manager might have a half dozen to a dozen direct
reports, some fewer, some
more. A manager should schedule all meetings with direct
reports over the course of a day
or two before meeting with his or her own supervisor, taking on
the role of “direct report.”
If this description of the organization conveys the idea that this
is one massive control
system, that is exactly the intent. During execution or
implementation of a strategy, doing
the work and controlling the work—its quality, timeliness, and
adherence to a budget—is
vital. And in the spirit of a good control system, actual
performance is compared to a
standard, the variance noted (especially negative variance),
solutions developed, and a
correction applied as soon as possible. Data collected about
performance, especially as
part of an information system, are essential, but a control
system needs more; that is why
the face-to-face meetings are imperative and why everyone in
the hierarchy must follow

through and put the corrections into effect to improve
performance the following month.
This description also gives the impression that managers take
part in many meetings,
and that too is by design. With so many meetings to prepare for
and attend, when do
managers get time to do their real work? Perhaps this is the
fallacy. Recall the definition
of a manager as “someone who gets work done through other
people.” The time spent in
meetings is the work. Whether that time is wasted or not is
another issue and goes directly
to whether the person conducting the meeting is an effective
manager. Managing well is
difficult, challenging, time consuming, but ultimately very
satisfying. The job gets done
on time and within budget, and your direct reports grow and
develop into productive,
congenial team members.
1. It is easy to measure what training was given, to whom, by
whom, how often, and whether
it was within budget. What measures would you suggest to
determine the effectiveness of
such training? Is it important?
2. At some time during the year, all managers are told that
budgets need to be slashed. What
is their likely response? Do all operational managers line up to
“make their case” for not
cutting budgets on their projects? Do vice presidents and other
senior-level managers make
the decisions as to where and what to cut?

3. With each manager receiving a monthly report about progress
on operational plans and
budget compliance, what additional benefit is gained from a
face-to-face meeting with indi-
viduals tasked with doing the work?
4. If you were a manager who had to oversee people and
projects, would you look forward to
your monthly face-to-face meetings? Under what circumstances
might you dread them? If
you can think of any, how could you improve the situation?
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CHAPTER 9Section 9.3 Dealing With Emergent Strategies
9.3 Dealing With Emergent Strategies
There is one type of strategy that occurs only during operational
execution. Emergent
strategies, first proposed by Henry Mintzberg of McGill
University, arise as a result of
an organization’s response to unexpected events as a strategy is
being implemented. In
Mintzberg’s terms, an intended strategy is akin to the “best”
strategy that was developed
and chosen. Such a strategy, when implemented,
is then called a deliberate strategy. If it fails for
whatever reason, it is considered an unrealized
strategy (see Figure 9.3).
As the deliberate strategy is executed, a pattern
may emerge that was not intended when the
strategy was first proposed. Actions that were

taken one at a time take on a cumulative effect and
become a strategy. For example, Clearwater Hos-
pital, which was discussed in the case study at the
beginning of this chapter, has an opportunity to
build a sports medicine and rehabilitation facility,
and it becomes clear over time that the hospital
has diversified into the related market of sports
medicine products. That is an emergent strategy
that was never a part of the strategy the organi-
zation set out to implement. Combined with the
deliberate strategy of serving clients needing ath-
letic training and treatment of sports-related inju-
ries, it evolves into the realized strategy of selling
sports medicine products and services. This is also
sometimes referred to as an umbrella strategy.
There is much validity to viewing strategy in this way, from
how is it formulated to what
actually happens in practice. Real life is messy, and rarely do
plans actually happen the
way they are intended. Few strategies are purely deliberate, just
as few are purely emer-
gent; the former allows for no learning while the latter means
no control (Mintzberg, Ahl-
strand, & Lampel, 1998). Reality is some combination of the
two.
Accepting the notion of emergent strategies allows the
organization to learn from consum-
ers and increase its capacity to experiment with new ideas.
Learning occurs even when
there is no emergent strategy; one of the important byproducts
of the strategic thinking
and planning process is to increase strategic learning and to
update everyone’s mental
models in a similar way. The very act of implementing a

strategy involves all kinds of
learning, which benefits the next round of planning.
© Peter Dazeley/Photographer’s Choice/Getty Images
Over time, a hospital may develop an
emergent strategy that develops into a
realized (or umbrella) strategy, such as
selling sports medicine products and
services.
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CHAPTER 9Section 9.3 Dealing With Emergent Strategies
1. Is it possible for an organization to experience emergent
strategies all the time? Is that the
same as saying that it has no strategy? Explain.
2. Mintzberg and his associates characterize deliberate
strategies as exhibiting control but no
learning, whereas emergent strategies exhibit the opposite. Do
you agree? Why or why not?
3. Do you believe that HSOs in general find it difficult to
realize an intended strategy? If so, is it
because of emergent strategies cropping up all the time or
simply poor execution?
Figure 9.3: Deliberate and emergent strategies
Abraham, S. C. (2006). Strategic planning: A practical guide for

competitive success. Miami, OH: Thomson South-Western
(Cengage), p. 157.
Realized strategies result from an organization’s response to
deliberate and unexpected events.
Keeping one’s eyes open for a pattern that signals an emergent
strategy is another way for
an HSO to stay agile and flexible. In times of constant and rapid
change, taking advantage
of opportunities “on the run” as well as formally through
strategic thinking is a sign of a
healthy organization. Should the emergent strategy become so
powerful as to swamp the
deliberate strategy, the organization can always have an
impromptu strategic planning
meeting and, with the board’s approval, acknowledge what is
happening and capitalize
on it with full budgetary support.
Eme
rgen
t
Stra
tegy
Unrealized
Strategy
IntendedStrategy
Deliberate
Strategy

Realized
Strategy
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CHAPTER 9Section 9.4 Controlling the Strategy Formulation
Process
9.4 Controlling the Strategy Formulation Process
Formulating strategies is usually carried out by a group of
people in an organization, and
a formal process should be established to get such a group to
coordinate its efforts and
work as one. What follows is a set of guidelines for setting up
and managing the process
in an HSO, building on the discussion in previous chapters,
which describes a process for
doing strategic thinking and strategy formulation. Insofar as the
abilities of different orga-
nizations to strategically manage with a formal process vary
greatly, such guidelines are
difficult to write. A few basic assumptions were made in
framing the recommendations:
• Most small HSOs do not have a good understanding of
strategy formulation
and therefore either do not perform it at all or do something
they “think” is
strategic planning.
• Organizations that do formulate strategies and use a formal
process could ben-
efit by benchmarking their process with these guidelines.

• Many HSOs do planning without reflecting on whether it is
done well or pro-
vides the organization with value. That is, they do so without
the benefit of any
strategic thinking.
Before the process of strategy formulation is begun, it would be
a useful exercise for mem-
bers of top management to assess the organization’s inventory
of needs. One device that
could accomplish this is a brief questionnaire, such as the
strategy quiz shown in Table 9.1.
Table 9.1: Strategy quiz: How strategic is your organization?
Answer each question with either a Yes or No by checking the
appropriate column next to it. Your
answers will be scored based on the number of No responses.
Questions Yes No
1. Are you realizing the full potential of your organization and
people?
2. Do you have a 5-year vision for your organization?
3. If so, do you believe your organization can achieve it?
4. Are you pleased with your organization’s profitability over
the past 3 years?
5. Do you believe the value of your organization is increasing
over time?
6. Are your organization’s revenues growing fast enough?

7. Do you have enough money (including ability to borrow) to
get the job done?
8. Do you have a significant advantage over your competitors?
9. Are your services competitive?
10. Do you know what your costs are?
11. Are you getting new services to market quickly enough?
12. Does your organization formulate strategies and do
operational planning every year?
13. Can you state what your organization’s strategy is and why
it will work?
(continued)
spa81202_09_c09.indd 261 1/16/14 10:08 AM
Process
Table 9.1: Strategy quiz: How strategic is your organization?
(continued)
Answer each question with either a Yes or No by checking the
appropriate column next to it. Your
answers will be scored based on the number of No responses.
Questions Yes No
14. Do you have at least three opportunities you are deciding

whether to pursue?
15. Do you know what your organization’s principal problems
are?
16. If so, do you know what to do about them?
17. Do you have a set of measurable objectives you are trying to
achieve?
18. Are you getting the most out of your people?
19. Do your employees know where the organization is going
and how it will get there?
20. Is your organization culture collaborative, innovative, and
trusting?
TOTAL
Source: Adapted from Abraham, S. C. (n.d.). Retrieved from
www.futurebydesign.biz
Whose Responsibility Is It?
In small HSOs that formulate strategies, a process that is often
called “strategic planning,”
the CEO or owner typically drives the process. Sometimes, the
CEO might use a consul-
tant or an executive within the organization to conduct the
process and help the group
decide on the strategies. Many small HSOs and new ventures,
however, do not formulate
strategies for the simple reason that there is only one strategy
possible, and the organiza-
tion’s energies are focused on executing it. A small medical

clinic, for example, is not likely
to do planning unless it is faced with
several choices or intense competi-
tion and, for the first time, is put in a
position of not knowing what to do.
In midsize to large HSOs, the job of
controlling the process is typically
delegated to a director position.
Absent such a position, responsibil-
ity would go to whomever the CEO
believes can do a good job or has some
experience with strategy formula-
tion, such as the CFO or a functional
vice president. Some organizations
form ad hoc or standing committees
to focus on strategic management.
Others employ a vice president or
C-level executive to direct strategy
formulation and related initiatives. If
no one wants the assignment or feels
Tim Brown/The Image Bank/Getty Images
The planning process can potentially be subcontracted or
outsourced. The actual decision making should be carried
out by the CEO and managers, who alone are accountable
for the strategic choices that are made.
spa81202_09_c09.indd 262 1/16/14 10:08 AM
Process

able to do it, someone from outside may be brought in to do it.
If housekeeping services,
billing, and medical transcription can be outsourced, so can
facilitation of the planning
process. However, only preparing and conducting the process
and achieving its purposes
should be subcontracted to a consultant. The actual decisions
cannot be subcontracted.
The CEO and managers, who alone are accountable for acting
on those decisions and
achieving the organization’s objectives, must make them.
The person in charge of the planning process should be sure all
those involved understand
what they have to do and give them time to do it. Part of the
process is creating standard
reporting formats that everyone understands and that facilitate
comparisons with later
years. At the outset, there should be a schedule for the planning
process that is enforced
unless a crisis intervenes. The individual managing the process
must remember that these
planning tasks are superimposed on people’s regular jobs and
may be viewed negatively
as an added burden. People involved may need convincing that
planning activities are
crucial for the organization and worthy of serious consideration.
What Approach Should Be Used?
Strategy formulation steps were covered in several previous
chapters. The manner in
which HSOs conduct these activities will differ, yet there are
certain criteria that should be
met. Key managers, particularly the person in charge of the

process, must understand the
process—what it is, what is involved, who should be involved,
why it is needed, and how
to realize the benefits from using it. The process must be
perceived as appropriate and
feasible for the HSO in terms of sophistication, complexity, and
culture. The organization
must be prepared to commit to the process and its outcomes. All
involved must agree to
take it seriously and implement those strategies and decisions
that result from the process.
The person in charge should explore several different
approaches or invite several con-
sultants who specialize in this area to discuss their approaches.
In fact, hiring a consultant
to help in doing planning the first time can be prudent. Ceding
this control (and worry)
frees managers and executives to participate in the process.
Furthermore, a consultant
can control the quality of the discussion and strategic ideas that
are proposed, as well as
ensure that real data and analyses are used as much as possible
rather than opinions and
conjecture. Finally, a consultant can act as facilitator to make
sure that all voices are heard,
not just one or two people who might dominate discussions. A
neutral facilitator is more
likely to ensure that people are not just saying what they think
the CEO wants to hear,
which is a major problem in many organizations. Ideally, a
consultant should be trusted
and one with whom the CEO is comfortable—someone who can
do a good job of guiding
participants in a strategy formulation process that is the best fit
for the organization. An

effective consultant should deliver benefits to the process that
outweigh the fees charged.
A Suggested Strategy Formulation Approach
The following approach would work with HSOs of almost any
size. It is generic and can be
tailored to fit a particular organization. The process has 10
basic steps; some of them could
be broken down into substeps (see Figure 9.4). Perhaps the most
crucial planning element
is to involve the right people, particularly those who will be
called upon to implement
the plan. Depending upon their experience, background, and
role in the organization,
spa81202_09_c09.indd 263 1/16/14 10:08 AM
Process
people going through the same pro-
cess of strategy formulation will
make completely different decisions
and achieve completely different
results. It is crucial, therefore, to con-
sider carefully who is involved in
the process. As has been discussed,
it would limit the effectiveness of
the process and of implementation
to restrict the planning group to just
the top management. Managers two
or three levels down from top man-
agement should also be included. If

this yields a number that becomes
unwieldy for simple meetings, it may
be necessary to limit the number that
participate or cascade the meetings
from one level to the next to accommodate everyone. What is
crucial is to obtain as many
different perspectives in the planning process as possible and
involve the people who will
be implementing the strategies. The value of a professional
facilitator becomes more pro-
nounced when there is a large group of people involved in the
process.
Strategy planning is only meaningful if the organization fully
intends to implement the
decisions taken. A common waste of time and money is for an
HSO to bear the cost of top
managers meeting at a retreat, sometimes with an expensive
facilitator, making impor-
tant decisions that lack follow-up. The result is business as
usual. One can only conjec-
ture some possible reasons for why this happens. Perhaps
“going through the motions”
of strategy formulation soothes some executives’ consciences.
Perhaps they believe that
“doing the planning” is all there is to it—a belief that no one
has bothered to correct for
them. Perhaps it is the amenities at the resort where the retreat
is held that has their real
interest. However, it is a waste of time to simply go through the
motions, so a commitment
to the process and implementation are requisite elements.
There are a few key strategic decisions to be made or at least
revisited. The first is to
confirm a commitment to a vision to which the organization

aspires. The outcome of the
process is deciding on the best strategic alternatives in the
circumstances. That may even
happen to be what the HSO is currently doing. After that,
overall organization-wide objec-
tives are set. Finally, major programs that are to be
implemented and resource allocations
are developed in detail.
Follow through is much more likely if the participants see these
decisions as being the best
that could be made, that they are feasible yet challenging to
achieve, that some urgency
attaches to getting them implemented, and that they would
result in a stronger and more
competitive organization. Focusing on a small set of objectives
increases the chances of
them being attained and lessens the likelihood of conflict
between objectives that might
occur with a larger number. A limited set of objectives would
also help focus the organiza-
tion. The Delphi approach, discussed in Chapter 3, is a useful
method for narrowing the
number of objectives.
The following description of each step in the process shown in
Figure 9.4 includes some
pointers for making the whole process successful.
© Getty Images/Jupiterimages/Stockbyte/Thinkstock
Strategy formulation involves confirming a commitment
to a vision to which the organization aspires.
spa81202_09_c09.indd 264 1/16/14 10:08 AM

Process
Figure 9.4: A suggested strategy formulation process
Abraham, S. C. (2006). Strategic planning: A practical guide for
competitive success. Miami, OH: Thomson South-Western
(Cengage), p. 157.
This is a generic 10-step planning process that can be tailored to
fit a particular organization.
Situation Analysis (a)
Certain key categories of data need to be collected in this initial
research step. Any time
that data are gathered, it is best to obtain a copy of the source
document or at least a com-
plete citation of the source. It should be self-evident that it is
best to get the most recent
data possible. If forecasts can be obtained, the source should be
recorded, because it has a
huge bearing on the credibility of the forecast itself. Finally,
key people in the HSO should
be appointed to act as gatekeepers for particular categories of
data, and everyone in the
organization should know who they are. Everyone can then send
items of information or
1. Situation Analysis (a)
Research done by various
groups in the organization
2. Situation Analysis (b)

Critique and elaboration
of research done
3. Synthesis
Identify key strategic
issues for the organization
4. Create Strategic
Alternatives
Must meet the
four criteria
5. Choose the Best
Strategic Alternatives
Perform criteria-based
analysis and argue for
the best alternatives
6. Set Organization-
Wide Objectives
Choose ones to
commit to
7. Design Major
Programs and
Contingencies
10. Assess the
Process
Implement the Plans

and Monitor Progress
8. Operational
Planning
Prepare detailed operational
objectives, plans, and budgets
by organizational unit
9. Final Check
Ensure that the detailed
plans will achieve the
strategic objectives
spa81202_09_c09.indd 265 1/16/14 10:08 AM
Process
leads about a particular category to these gatekeepers. If done
throughout the year, this
first step is not needed; otherwise, one must allow sufficient
time to collect and analyze
the data and prepare useful summaries. Every month, these
gatekeepers should summa-
rize and make sense of the data collected to date, which is then
sent to everyone on the
planning team.
Substantial preparation should be done for each step. Research
and data collection must
be based on fact or analysis, not on opinion. Where data cannot

be obtained, for example,
on competitors that are privately held, make assumptions and
move on. Paying for critical
data such as economic forecasts or competitive intelligence may
be worth considering as it
could be an investment. Also consider adding a health
economist or health policy special-
ist to the organization’s permanent staff if it turns out to be cost
effective.
Situation Analysis (b)
Each gatekeeper should make a summary presentation of what is
going on in his or her
particular category. Such presentations should be based on the
data collected and ana-
lyzed during the previous 12 months and should include
numbers, trends, graphs, and
sources wherever possible. The gatekeeper should interpret all
the data and conclude
with the most significant and relevant facts and trends that will
affect the organization.
This is one way of educating the planning team about changes
and implications arising
in that particular category. The presenters should encourage
questions in order for com-
plex issues or trends to be understood or challenged. This
process should appeal to HSOs
that like structure. An alternative to this process is a series of
strategic conversations, dis-
cussed in Chapter 2.
Synthesis
This step allows the participants to list all critical uncertainties,
that is, the key strategic
issues that could have a positive or negative impact on the
organization. “Critical” means

those issues that must be addressed in the ensuing strategic
plan. Everyone’s suggestions
should be solicited first before combining or eliminating any
issue.
Create the Strategic Alternatives
This is a creative activity well suited to an extremely diverse
group of people. Ideally, it
would include representatives from different functional areas
and levels of the HSO, with
very different business and healthcare backgrounds, newer
members of the organization,
and seasoned veterans. Starting with the list of strategic
alternatives and working in small
groups, each group should come up with its version of
alternatives and check to see that
they meet all four criteria described in Chapter 7.
When the small groups have designed the proposed alternatives,
these can be assessed
and debated by the entire planning assemblage. The idea is to
synthesize the efforts of the
various subgroups into a final grouping of three or four really
good strategies that meet
the HSO’s criteria. Experience has shown that doing this step
well always takes longer
than expected. One idea to force an intelligent critique of the
alternatives involves exam-
ining what could go wrong. Assign a subgroup to tackle each
alternative bundle, and
instruct them to come up with all the reasons they possibly can
as to why that alternative
spa81202_09_c09.indd 266 1/16/14 10:08 AM

Process
would not work. It is amazing how this extra step adds a
humiliating dose of reality to
the process, can result in important modifications to the
alternative in question, and can
even cause one alternative that was going to be considered by
the group to be discarded.
Choose the Best Strategic Alternatives
Select a subset of five to six relevant criteria and evaluate each
strategy according to each
criterion. The entire group of participants should reach
consensus that whichever strate-
gic alternative is finally selected really is the best one in the
circumstances and describe
why. Ultimately, everyone should understand that this is how
the organization will oper-
ate over the next 3 to 5 years.
Set Organization-Wide Objectives
As discussed earlier, this is a three-step process. Depending on
the preferred key indicator,
such as revenues, market share, and quality indicators, the
organization needs simply to
answer the question “How far do we
want to go this next year and in each
of the next 2 years toward imple-
menting the chosen strategies?” It
will depend on the HSO’s current
resources and those it could addi-
tionally access, as well as the nature
of the chosen strategies. In addition,

it will depend on whether the com-
petitive environment is becoming
more difficult or any other threats
are looming. Based on how the HSO
has been doing in the recent past,
the objectives should be set at a chal-
lengingly high level while still being
achievable. Most importantly, those
who must be accountable for achiev-
ing these objectives should agree to
the level at which they are set, and
that level should be challenging.
Of course, the model assumes a participative way of setting
objectives; some CEOs still
reserve the right to do this on their own. However, a wise CEO
knows that when manag-
ers charged with implementing a strategy set their own
objectives, they are more likely to
achieve them.
Design Major Programs and Contingencies
Some of these major programs are included in the chosen
strategies, while others may
need to be added. It is this list of programs that will guide the
creation of the operational
plans. “Contingencies” here refer to the trigger–contingency
pairs that were discussed in
Chapter 7.
Andrew Baker/Ikon Images/Getty Images
Setting objectives is a team activity that requires an
understanding of the competitive environment and other
threats that may prevent the organization from achieving
its intended strategy.

spa81202_09_c09.indd 267 1/16/14 10:08 AM
Process
Operational Planning
This is one of the more complex steps in the process because
there are many ways to create
operational plans. Given the organization-wide objectives and
major programs already
identified, the directors of functional units (e.g., patient care,
finance, marketing) and
other support units (e.g., ancillary services, materials,
purchasing) take these as mandates
to their respective staff and get them to generate detailed
operational plans that would
contribute to achieving the objectives and chosen strategies. At
a minimum, these plans
should include the following:
• A timeline of specific tasks the unit will undertake during the
year
• A proposed budget to accomplish them by task and month
• Specific details as to who will be participating in these
activities and, in particu-
lar, the person who will be responsible for each activity
• A list of additional resources, human and material, that will be
required to com-
plete the proposed tasks
Final Check

Once the operational plans have been drafted, they should be
reviewed by top manage-
ment and/or the director of strategic planning to check their
feasibility, verify that the
requested budgets do not exceed available funds, and confirm
that completing all the
planned activities will, in fact, achieve the overall objectives
for the organization. This
mixture of top-down and bottom-up planning may have to
endure one or more iterations
before the operational plans and budgets are finally approved.
For this reason, be sure to
allow enough time to complete this process properly.
Assess the Process
Those who participated in the strategy formulation process
should be asked to complete a
detailed questionnaire about how well it went and the quality of
the decisions made. The
following section discusses measures for improving the process.
1. You work for an HSO that has never done any structured
strategy formulation. Describe the
steps you would take to persuade the CEO that going to the
trouble of putting a process in
place would really benefit the organization.
2. In your opinion, what might be the most difficult part of the
strategic planning process for
an organization to develop competence in? Explain your answer.
3. If you had to choose from these two alternatives, which
would you choose: good data but
poor decision making, or untrustworthy data but good decision

making? Why?
4. If an HSO did operational planning well but had no strategic
direction, could it be success-
ful? If it could, why bother doing strategy formulation?
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CHAPTER 9Section 9.5 Improving the Strategy Formulation
Process
9.5 Improving the Strategy Formulation Process
Strategy formulation is, at its heart, a process for
arriving at strategic decisions and achieving some
purpose. However, unlike other healthcare pro-
cesses, the output is not patients with improved
health; it is nothing less than the future of the orga-
nization. Assuming that improving the planning
process will improve the quality of strategic deci-
sion making in the future, it should be reviewed
every year to see where improvements might be
made. Such a review should include every aspect
of the process—the quality and adequacy of the
data and analyses, whether enough expertise was
at hand or applied, the quality and extent of the
discussions, the degree to which mental models
were changed and unified, whether the key stra-
tegic issues were properly identified and well
understood, and so on.
Questions for Improving the Process
The following questions should help in assessing
the process for formulating strategies and making

improvements for the following year.
Situation Analysis
1. Were sufficient data collected for various parts of the
situation analysis? If not,
which particular parts were shortchanged?
2. Was enough time allowed for data collection? Where would
more time allowed
have been beneficial?
3. Was enough analysis performed on the data? If not, where
would more analysis
have been beneficial?
4. Were credible sources used for data and forecasts? If not, for
which kinds of data
were they not credible?
5. For those analyses that used subjective estimates, was there
consensus as to
how those analyses turned out? Where particularly did the
subjectivity affect
the credibility of the analytic findings? Were the opinions of
some people given
undue weight over those of others?
6. Would the use of outside experts have improved any part of
the situation analy-
sis (e.g., having a health policy analyst talk to the managers
about healthcare
trends for the coming year)?
7. Did the participants in general understand the terms and
terminology used in

the situation analysis (e.g., core competence)? Were there any
terms or concepts
that caused confusion?
Sparky/The Image Bank/Getty Images
The person responsible for facilitating
the strategy formulation process should
distribute a questionnaire with a similar
set of questions to all participants in
the process. These responses should be
analyzed and the results presented with
constructive commentary.
spa81202_09_c09.indd 269 1/16/14 10:08 AM
Process
Strategic Analysis
8. Were enough key strategic issues identified? If not, what
might have been
added?
9. In hindsight, did the key issues identified really represent the
most critical issues
facing the organization? If not, why not? Which ones were left
out? Was the
omission an oversight, or were some people afraid to articulate
it?
10. Did the strategic issues reflect the kind of long-term
strategic thinking that par-

ticipants imagined should have occurred? If not, why not?
11. Were the strategic alternatives sufficiently creative and
realistic?
12. When creating the strategic alternatives, were participants
unduly influenced
by what the HSO is currently doing, by its current strategies, or
by what partici-
pants believed the CEO really wanted? If so, how could this be
corrected in the
future?
13. Did everyone who could have contributed usefully to the
process of creating
these alternative strategies actually do so? If not, how could
this be corrected?
14. Were the criteria used to evaluate the alternative strategies
reasonable for this
organization? If not, which others should have been used?
15. Did the analysis that was used comparing the alternatives
against the criteria
produce a believable result? Why or why not?
16. Which of the alternative strategies might the organization
have been advised
to pursue other than the one chosen? Why? Was every point of
view given fair
consideration? If not, why not?
17. During the sessions choosing preferred strategies, were
participants allowed
ample opportunity to express their feelings, agreements, or
misgivings? If not,

why not?
Recommendations
18. Were the objectives that the organization decided on for the
next year appropri-
ate and achievable? If not, why not?
19. Are the objectives for 3 years from now appropriate and
reasonable? Are they
unattainable as stated, “stretch” objectives (challenging yet
attainable), set with-
out much careful thought (e.g., an extrapolation of last year’s),
or set too low?
Why or why not? What should they have been?
20. Are those who participated pleased and excited about the
direction the organiza-
tion is taking now as a result of the planning exercise? If not,
why not?
Some General Questions
21. Did the whole process take too long? Why? Where could it
have been shortened?
22. Did the process stick to the original schedule? If not, where
did it deviate? Might
the schedule have been unrealistic?
23. If the process did not keep to the original schedule, were
there any adverse
effects?
24. What lessons were learned about the process this year that
might be put to good
use next year?

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Process
Benefiting From the Process
Benefits do not accrue automatically every time an
organization engages in strategy formulation; they
are more likely to be realized if they are consciously
sought. Both strategy planners and the consultant
facilitators advising them should strive to ensure
that these benefits are realized. The extent to which
they are realized, therefore, constitutes an excellent
assessment.
The 10 benefits of effective strategy planning may
also be viewed as criteria for assessing whether an
organization is doing planning effectively. The 10
benefits are organized to follow the Association for
Strategic Planning’s rubric of “Think—Plan—Act,”
as shown in the following box.
1. Participating fully in strategy formulation is unquestionably a
learning experience. Do you
think that special training beforehand would make a difference?
Why or why not?
2. If strategy planning participants are sent materials ahead of
the process, what should the
materials contain?

3. After a couple of annual iterations of improving the process,
an observer might be forgiven
for thinking that the process was good enough not to change any
more. Give some reasons
why that would be wrong.
4. Why is achieving consensus at the post-planning debriefing
meeting advisable?
© scanrail/iStock/Thinkstock
One benefit of effective strategic
management is ensuring that all
programs are aligned with the
vision, strategy, and objectives of the
organization.
25. Has the organization’s knowledge of strategic management
increased? How do
you know? If not, why not?
26. Was everyone who participated in the process substantially
“on the same page,”
or did the process conclude with a number of people in
significant disagree-
ment? If the latter, how might such disagreements be addressed
more fully and
resolved?
27. Overall, is the HSO better off for having been through this
strategy planning
exercise? Why or why not?
The person responsible for the strategy planning process should
distribute a question-

naire with the preceding questions (or a similar set) to all
participants in the process. The
responses should be analyzed and the results presented with
constructive commentary
and suggestions for what should be changed the following year.
The analysis and sug-
gestions for change should be discussed at the meeting and
consensus sought as to which
changes should be implemented. Unless such a debriefing takes
place, changes made to
the process might be resented; in addition, it serves an
educational purpose.
spa81202_09_c09.indd 271 1/16/14 10:08 AM
Process
The 10 Benefits of Effective Strategy Planning
Think
1. A shared understanding of external changes
2. The ability to anticipate future external changes
3. The ability to search for a better strategy or business model
Plan
4. Having a strategic vision
5. Choosing the best strategy from among viable alternatives
6. A constantly improving strategy formulation process
7. Having the board of directors on the same page
Act
8. Becoming a stronger competitor
9. Having an adaptive, innovative culture

10. Having all programs aligned with the vision, strategy, and
organizational objectives
Adapted from: Abraham, S. (2010, February 23). Ten benefits
of effective strategic planning—and why you should want them
all. Presentation at the 2010 ASP National Conference,
Pasadena, CA.
1. A Shared Understanding of External Changes
To use a military analogy, just as conflicting accounts about an
enemy’s strength, position,
and deployment make it difficult to devise a winning strategy,
so too does the absence of a
shared understanding of external changes and their impacts on
the organization make the
crafting of a winning strategy extremely difficult. Because
changes occur continuously,
the only way to keep up with them and even anticipate some is
to monitor them year
round and keep the strategy planning group and board of
directors informed as to key
changes and developments in all areas. One person should be
responsible for each area
and be trained to collect and summarize data in useful form. A
summary for the year with
emphasis on recent trends should be prepared in advance of the
annual planning meet-
ings and be distributed to participants. To the extent this is done
well, the organization’s
decision making will improve.
2. The Ability to Anticipate Future External Changes
A number of well-known techniques enable an organization to
explore “soft” assump-
tions about the future and provide additional options for

planning. These include sce-
nario planning, forecasts, and simulations (see Chapter 3). It
may be that the HSO would
be advised to engage a consultant who specializes in one of
these areas or pay attention to
forecasts that have earned a good reputation over time.
Expressed another way, the ben-
efit here is that the resulting information can guide the HSO
toward actions that enable
a preferred scenario to occur or develop a contingency in case a
hoped-for scenario does
not occur.
spa81202_09_c09.indd 272 1/16/14 10:08 AM
Process
3. The Ability to Search for a Better Strategy or Business Model
By participating in a formal planning process, an HSO can
realize the full value of strategy
management. How else will an HSO find a “blue ocean” or
situational monopoly with no
competition? How else can it guard against being disrupted by
an organization outside
the industry or even plan a disruption itself in a proactive
move? How else can it gain a
competitive advantage it lacks or strengthen one it already has?
For every different strategy and business model contemplated,
someone in the organiza-
tion should assess its costs, feasibility, benefits, and risks on an
ongoing basis. The results
of such assessments play directly into the strategic decision-

making process. Except when
the HSO needs to act immediately because a decision is
imperative, the information can
wait until the annual strategic planning process comes around.
4. Having a Strategic Vision
Every organization that wants to endure should have a strategic
direction and strive to
become something. Succeeding is more likely if there is a clear
vision and if everyone
knows what it is and is motivated to help the organization get
there. Visions should be
realistic (achievable within a set time frame—5 or 10 years is
typical), concise, inspira-
tional, and memorable. They sometimes include a value
statement, although listing val-
ues separately is more common (see Chapter 2).
The real benefit of a clear vision statement is to get everyone in
the organization on board
and wanting to achieve it, and, though cumbersome, everyone in
the organization should
also have had a hand in creating it or at least providing
feedback before it is adopted. As
soon as the organization is close to achieving its vision, it
should be changed, with the
organization being careful to go through the same process of
getting buy-in from every-
one before adoption.
5. Choosing the Best Strategy From Among Viable Alternatives
Systematically choosing from the best options available is a
benefit, as it allows people to
trust the decision that was made and have faith in the direction
in which the organization
is headed. This is beneficial only if strategy formulation

generates good viable alternatives
and uses a structured decision-making process for selecting the
best one.
Having selected the “best strategy” doesn’t guarantee success. It
must be well executed
for the HSO to succeed. It is much easier to “sell” the strategy
down the line in an orga-
nization and motivate a high level of execution if people know
why it is the best from
among the options considered.
6. A Constantly Improving Strategy Formulation Process
The benefit of improving the process should be clear: better
strategic decision making.
This might entail involving different people, getting better
information, stimulating more
spirited discussions and encouraging diverse views, or even
using computer software
to include inputs from everyone quickly (Warden & Russell,
2001). Without thoughtful
annual improvements, an organization’s strategy formulation
can become a rote exercise
that is taken ever less seriously and one that participants, for
those very reasons, resist
wanting to join in.
spa81202_09_c09.indd 273 1/16/14 10:08 AM
Process
7. Having the Board of Directors on the Same Page
For public organizations and nonprofits—and quite a few but

not all privately held
HSOs—it is imperative to ensure that the board of directors
approves of all strategic
decisions before any move to implement them is made. In fact,
there are instances where
the strategic decision comes from the board, as in turning down
a joint venture oppor-
tunity or deciding to acquire another organization. In the typical
case, where strategic
planning is done by a top-management or planning team, there
has to be some mecha-
nism for the board to be kept apprised of the process. In a 2005
survey of more than 1,000
directors, management consulting firm McKinsey & Co. found
that agreement between
the board and the CEO on strategy was considered the primary
reason for success, as
well as the primary reason for failure in CEO appointments
(Felton & Fritz, 2005). In
some organizations, the CEO is also chairperson of the board
and so automatically serves
as the desired link.
Boards of directors may have a strategic management committee
whose chair attends the
meetings of the planning group and keeps the board informed.
The benefit, of course, is
knowing that the strategic decisions made are in the best
interests of the stockholders, in
the case of a public HSO, or the sponsors and consumers in the
case of a nonprofit orga-
nization. Ultimately, it is the board that has responsibility for
the strategic direction of the
organization.
8. Becoming a Stronger Competitor

If planning is done well and the strat-
egy properly executed, then the orga-
nization will thrive. This, of course, is
the principal benefit for doing plan-
ning in the first place. Many factors
have to contribute for this benefit to
be realized. For example:
• Knowing how the health-
care industry and markets
are changing
• Anticipating and meeting
consumers’ needs
• Getting more consumers to
use your services
• Developing or strengthening
a core competence
• Knowing what your com-
petitors are up to and outdoing them
• Defending one’s position against attack from competitors
• Looking for “blue oceans” or monopolies with no competitors
• Looking for new service opportunities before someone else
does
• Maintaining a strong quality reputation and being true to it
© Ariel Skelley/Blend Images/Corbis
A healthcare organization’s ability to thrive depends partly
on how well it anticipates and meets consumer needs.
spa81202_09_c09.indd 274 1/16/14 10:08 AM

Process
Management knows that the organization is successful if it
achieves gains in revenues
and market share, maintains its reputation for high quality and
consumer satisfaction, or
achieves other established measures of success the organization
holds dear.
9. Having an Adaptive, Innovative Culture
When an HSO has been following the same strategy for some
time, the culture adapts to
that strategy and gets it to work. However, if some major
change is deemed necessary,
such as pursuing a new strategy or adopting a new healthcare
delivery model, and the
culture remains what it always was, then the change will not
succeed. A mismatched cul-
ture is one of the principal reasons why changes and new
strategies fail, and it is widely
acknowledged that it is difficult to change a culture. The reason
is that change imposed
from the top meets a lot of resistance.
An adaptive culture is one that is willing to change if the reason
for doing so makes sense.
It is a culture that values open communication, education,
teamwork, and individual ini-
tiative. Organizations that have adaptive cultures make the
necessary changes over time
and succeed. An innovative culture does not simply encourage
innovation and new ideas

and look for the next “big thing.” It also puts a high value on
learning from mistakes and
giving people permission to make mistakes. Innovative cultures
encourage the sharing of
experiences and developing of ideas no matter their source.
It would be difficult to make strategic decisions and implement
them if the culture were
not adaptive and innovative. The converse, of course, is also
true. Making good strategic
decisions that call for change and smooth execution will force
the culture to be adaptive
and innovative. Hiring people with similar traits will ensure that
this desirable culture
endures.
10. Having All Programs Aligned With the Vision, Strategy,
and Organizational Objectives
The importance of aligning everything the organization does
with its vision, strategy,
and organization-wide objectives was discussed in the context
of operational and bud-
get planning (see Chapter 8). The benefit is the assurance of
knowing that completing
all programs, projects, and activities as planned will result in
the strategy being imple-
mented and the vision and organization-wide objectives being
fully realized (barring
unforeseen circumstances).
In too many organizations, what employees in the different
functional areas and opera-
tional units actually do has little to do with the strategy that is
in place, because little or no
effort was expended to make sure that the two were aligned. As

a result, the strategy fails
or “business as usual” triumphs. When operational planning is
done, critical elements
include performance measures (to track progress), appropriate
training, and reward and
incentive systems.
spa81202_09_c09.indd 275 1/16/14 10:08 AM
CHAPTER 9Summary & Resources
1. Of the 10 benefits discussed in this section, which of them, in
your opinion, are most often
unrealized and why?
2. Which of these benefits, again in your opinion, are most
difficult to realize and why?
3. Do you believe that there are any benefits that HSOs are less
interested in realizing and so
probably won’t?
Summary & Resources
Chapter Summary
• Some organizations do not create operational plans, as these
would consist of
just doing whatever the HSO is already doing. For many
organizations, however,
change is constant and the push to become a stronger competitor
and reduce

costs is never ending.
• Creating operational plans involves difficult choices; the plan
must get the job
done, be within the organization’s technical and capacity means
to do, and be
done for the lowest cost within the allocated budget.
Operational plans include
projects and activities the organization is currently doing as
well as new ones and
changes in the way current activities are being done. The plan
for each project
should include start and end dates, equipment needed or used,
people involved,
who is accountable, and estimated costs for all elements by
month.
• It is conventional wisdom that nothing gets managed or
improved that is not
measured. Tracking progress of all operational plans is
therefore critical to keep
them “on track and on budget.” For specific projects, software
such as Gantt
charts and PERT networks can be used to continually monitor
progress.
• Care needs to be exercised to make sure that the right things
are being measured.
If a better-trained workforce is a goal, knowing how many
lectures or workshops
are given and how many people attended will not help; a way
has to be found
for measuring increased effectiveness or capabilities resulting
from the training.
• Managers meet face to face with their direct reports regularly

to discuss nega-
tive variances that have resulted from the previous month’s
operations. Negative
variances include projects that missed their deadlines, have a
higher probability
of missing them, or exceeded their budgets. The meetings are
vital for managers
to understand the causes for such variances and discuss possible
solutions. In
addition, such meetings are an opportunity to strengthen
relationships and help
managers understand their direct reports better.
• Operational management variances must be identified and
then corrected as
soon as possible. After having met with all direct reports, the
manager later takes
on the role of direct report when a similar meeting is held with
his or her supervi-
sor. Strategic management involves getting things done (right)
through people,
and such meetings are a critical part of a manager’s job.
spa81202_09_c09.indd 276 1/16/14 10:08 AM
• While executing a strategy, changes may result in activities
being done or opportu-
nities pursued that, in retrospect, bear little resemblance to the
original “intended”
strategy. Such new activities could form an “emergent
strategy,” first described
by Henry Mintzberg, and, together with the strategy being

implemented (“delib-
erate” strategy), could turn into the final “realized strategy.”
When intended or
deliberate strategies fail, they are considered “unrealized.”
Agile or adaptive cul-
tures are best able to handle such real ongoing changes in
stride.
• Although not an operational plan per se, the strategy planning
process must nev-
ertheless be managed, especially as it is done in addition to
managers’ regular
responsibilities. Strategy planning is the responsibility of the
CEO or possibly a
designated vice president, even though a consultant might
facilitate the process.
The person responsible for the planning process should survey
all participants,
analyze the responses, and report to a debriefing meeting to
discuss proposed
improvements. A consensus on the proposed improvements
should be obtained
before implementing the changes for the following year.
Web Resources
http://www.beckershospitalreview.com/strategic-planning
On this site you’ll find short articles on strategic and
operational planning in hospitals.
http://www.ibrd.gov.nl.ca/regionaldev/CCB/StratPlan/CCB_Stra
tPlanFacilitator
Guide.pdf
On this website, you’ll find the Strategic Planning Facilitator
Guide developed by the
Department of Innovation, Newfoundland and Labrador
(Canada). The approach can be

adopted for use in HSOs.
http://www.makeuseof.com/tag/build-mind-map-microsoft-
word/
This website enables you to build a mind map in Microsoft
Word.
http://statehieresources.org/state-plans/
This website contains a list of strategic and operational plans
for health information
exchanges in various states.
Key Terms
control system A mechanism that allows
management to compare actual perfor-
mance to an expectation, measure the vari-
ance, take action to reduce the variance,
reset or update, and test again. Corrective
action should be taken as soon as it is
found necessary.
deliberate strategy The intended strategy,
operationalized and executed.
emergent strategy A strategy the organi-
zation pursues during implementation that
was never a part of the intended strategy.
Gantt chart A type of bar chart that
depicts a project schedule, including the
start and finish dates of various project
elements.
spa81202_09_c09.indd 277 1/16/14 10:08 AM
http://www.beckershospitalreview.com/strategic-planning

tPlanFacilitatorGuide.pdf
tPlanFacilitatorGuide.pdf
http://www.makeuseof.com/tag/build-mind-map-microsoft-
word/
http://statehieresources.org/state-plans/
negative variance An instance where a
project’s progress is delayed and could
miss a deadline, or where its budget has
been exceeded, or where performance
comes up short of a quantitative standard
or expectation.
realized strategy A combination of delib-
erate and emergent strategies.
unrealized strategy A failed strategy.
spa81202_09_c09.indd 278 1/16/14 10:08 AM
Choosing the Best Strategy
Learning Objectives
• Select criteria for choosing strategies appropriate to an HSO
and its purposes.

• Use the criteria for evaluating strategic alternatives to help
select the best one.
• Compare the differences between company partial, functional,
and operational objectives, and
among objectives, goals, and strategies.
• Explain why contingency planning is necessary and how to
devise meaningful triggers and
contingencies.
• Discuss why the board of directors has to be kept informed
and involved throughout the strategic
decision-making process.
Chapter 7
Sergey Nivens/iStock/Thinkstock
spa81202_07_c07.indd 195 1/15/14 3:51 PM
CHAPTER 7Section 7.1 Selection Criteria
This chapter explains how to choose the best strategy for the
organization from a number
of viable alternatives using carefully selected criteria and how
to argue persuasively for its
adoption (refer to Figure 1.1). It also shows how to arrive at the
other strategic decisions
and keep the board of directors involved through the process.
7.1 Selection Criteria
An organization may have only a few courses of action open to
it or a very large number

of strategic alternatives. The goal is to pick strategies most
likely to succeed. For instance,
when you play the game “Rock, Paper, Scissors,” you have
three strategies available. You
can choose to form your hand into
a rock, a piece of paper, or a pair of
scissors. Before making your choice,
you consider some factors. What
form did you choose in the last round
of the game? What did your oppo-
nent choose? Does your opponent’s
body language offer any insight as
to whether he or she will form rock,
paper, or scissors? Does your body
language change depending on your
anticipated choice? These consider-
ations are the criteria you use in mak-
ing a choice.
In the “Rock, Paper, Scissors” game,
winning may simply be the result
of good luck. For HSOs choosing
between strategic alternatives, the
hope of good luck is not the best way
to select strategies. Organizations that systematically evaluate
strategic alternatives and
effectively implement the chosen strategies are the ones most
likely to have “good luck.”
Choosing among alternatives becomes a little easier when each
alternative is compared,
one at a time, against a set of criteria. What kinds of selection
criteria are appropriate?
Because one of the conditions for creating a good strategy is

that if implemented, it would
lead to success for the HSO, the criteria to evaluate the strategic
alternatives should
together represent what “success” means to the organization. At
times, the analysis is
insufficient to decide an issue, and the decision may eventually
turn on more subjective
factors. Depending on the HSO and its particular situation, the
criteria explored in this
section are possible candidates that could be used to examine
strategic alternatives given
an organization’s current standing and future outlook.
OJO Images/SuperStock
HSOs that want to strategize effectively should not
rely simply on luck but rather on careful planning and
assessment.
spa81202_07_c07.indd 196 1/15/14 3:51 PM
Adherence to Mission
While many publicly traded companies outside of the healthcare
industry use share-
holder value as a primary criterion for choosing among
alternative strategies, this is often
not the top priority for HSOs. Whether the HSO is for profit or
nonprofit, the delivery of
healthcare services is usually patient centered and mission
driven. Improving the health
of the community and providing high-quality services are often

goals found in an HSO’s
mission statement.
When the HSO is affiliated with a religious organization,
strategic priorities are influ-
enced by a sense of calling to work for the common good. When
selecting among various
strategic alternatives, a religiously affiliated HSO would want
to consider the impact on
people’s health and the system’s ability to care for the poor and
vulnerable.
The highly competitive nature of today’s healthcare market has
resulted in the missions
of nonprofit HSOs and the means used to pursue them becoming
more closely aligned to
those of for-profit HSOs (Reeves & Ford, 2004).
Revenue Growth
Revenue growth is one of the most common criteria. Without
revenue growth, for
example, a religously affiliated HSO would not be able to
continue its mission of caring
for the poor and vulnerable. A striking example of revenue
growth is illustrated in Case
Study: Carolinas HealthCare System.
Case Study: Carolinas HealthCare System
For years, Charlotte Memorial Hospital had been a charity care
facility that “lost money every year because most of its patients
couldn’t pay their bills” (Garloch & Alexander, 2012, para. 2).
Today, Charlotte Memorial is part of Carolinas HealthCare
System,
which owns or manages about 30 affiliated hospitals in North

and
South Carolina, has nearly $7 billion in revenue, and is one of
the
largest public nonprofit health systems in the United States.
The transformation of Charlotte Memorial Hospital, a publicly
owned facility, began in the early 1980s, when it became appar-
ent the hospital could not continue to provide indigent care if it
did not also attract paying patients. In 1983, its new CEO
unveiled
a plan to compete with newer facilities in the area by building a
heart institute, space for physician offices, and an 11-story hos-
pital tower to replace a 1940s wing. The CEO began to put the
hospital in the black by improving collections from patients and
insurers (Shinn, 2002). After this expansion, it continued to
grow
into a large health system that today directly employs more than
(continued)
© Images.com/Michael Aveto/Corbis
The Carolinas HealthCare Systems
success story shows that a health
system can provide quality
indigent care and also achieve
profitability.
spa81202_07_c07.indd 197 1/15/14 3:51 PM
Case Study: Carolinas HealthCare System (continued)

1,900 physicians and serves patients at hospitals and other care
locations, including freestanding
emergency departments, outpatient surgery centers, pharmacies,
laboratories, imaging centers,
and nursing homes.
While delivering on its mission to take care of all citizens with
outstanding healthcare, Carolinas
HealthCare System has also had tremendous revenue growth, so
much so that in June 2011, Meck-
lenburg county commissioners voted to stop paying Carolinas
HealthCare $16 million a year to care
for the uninsured, as it no longer needed taxpayers’ help
(Garloch & Alexander, 2012).
Profitability should be used as a criterion for selecting
strategies when an HSO has insuf-
ficient working capital or inadequate or negative cash flow,
when profits in recent years
have been flat or negative, or when it is highly leveraged
(significantly more debt than
equity). Today, healthcare organizations are facing increasing
financial risk, which requires
strategic management to be more clearly linked to financial
planning (Zuckerman, 2012).
Weiss (2005) recommends that HSOs conduct a sound cost
analysis, ideally hiring a con-
sultant to assist in identifying the expenses associated with a
particular strategy as well
as the financial implications of various choices (for example,
joint venture versus buy).
Although profitability will always be a factor, noneconomic
questions such as “How will
this investment improve coordination of patient care?” are also
important to consider.

For publicly traded HSOs, shareholder value is an important
criterion, for choosing not
only from among alternative strategies, but also from among
alternative investments. It
requires an HSO to have a model for computing shareholder
value so that the computa-
tion for each strategic alternative or investment uses common
values of discount rates
and common assumptions about the future environment. In this
way, the results become
comparable.
Riskiness
Organizations vary in their propensity to take risks. They are
more inclined to take risks
when the decisions have paid off for them in the past and when
they have sufficient capi-
tal to afford a few mistakes. But degree of risk or riskiness as a
criterion is more than this.
An HSO’s culture can, for example, be risk averse. In this
situation, the organization will
avoid risk even when the risk has favorable odds of success.
Risk can be analyzed and
measured, but few HSOs have the skills to perform such
analyses. Instead, the leaders
prefer to make a risky decision according to instinct, or assess
risk by venturing an opin-
ion or two (guessing), or even ignoring any underlying risk.
One way in which risk can
be discussed among a group of people who are not risk analysts
is as follows: Because
all alternatives except “status quo” involve doing something the
organization has never
done before, “risk” can be used as a subjective measure of the
likelihood that an HSO can

implement the strategy successfully. Some alternatives are sure
to score higher or lower
than others when risk is viewed this way.
spa81202_07_c07.indd 198 1/15/14 3:51 PM
Timing
There may be issues of timing to consider among the strategic
alternatives in question.
Some alternatives are sensitive to when they are implemented,
such as accelerating intro-
duction of a new service or entering a particular market. For
example, in August 2013
the insurance company Wellpoint signed a contract with
Univision, the Spanish-language
media network, to be the exclusive sponsor of its popular
health-related programming.
This deal is intended to give Wellpoint an advantage over other
insurers in connecting
with Latinos to sign them up for coverage (Gold, 2013). If
implementing an alternative
now increases its likelihood of success as opposed to doing it
later, this may be reason
enough to choose it. Conversely, if doing it now reduces any
advantage you might other-
wise have, such as investing in a new medical building just as
the economy turns down
sharply, then that may be reason enough to reject the
alternative. However, using this
criterion typically requires more data.

Investment Requirements
Amount of investment required is a practical criterion. If a
particular strategic alternative
requires an amount of capital the HSO does not have or cannot
secure, then it should not
even be considered a bona fide alternative because it is not
feasible. Of course, the organi-
zation could borrow more money, but it must be careful not to
exceed some value of debt-
to-equity ratio required by creditors or increase its debt to the
point where its cash flow
cannot service the debt. Obtaining equity capital may be
relatively easy for a public com-
pany that has been performing well, but not so for a private
company. In certain circum-
stances, an HSO could go public and raise some equity capital;
in many circumstances,
this is not possible.
Some private HSOs turn to the venture capital
market for funds. For instance, U.S. Renal Care,
a network of 85 dialysis centers as well as home
and specialty hospital dialysis programs, was
started in 2000 with funding from private equity
investors (Walsh, 2012). To support its expansion
strategies, Heart to Heart Hospice, a provider
of hospice care based in Plano, Texas, secured a
minority investment from Summit Partners, a
growth equity firm in Boston (Walsh, 2013).
An HSO could find a partner to share some of
the risk and put up some of the capital required.
But in this case, profits resulting from the strategy
must also be shared. Finally, being acquired by
the right organization could provide the capital

needed to finance a strategy, but this step should
be taken only in the best interests of the organiza-
tion, not just as a means of raising capital. In its
most simplistic application, all other things being equal, it
makes more sense to choose a
strategy that requires less investment over another that requires
more.
Alex Williamson/Ikon Images/Getty Images
Some private HSOs turn to the venture
capital market for funding.
spa81202_07_c07.indd 199 1/15/14 3:51 PM
Even when an organization can come up with the investment
required by a particular
alternative, an appropriate criterion might be return on
investment (ROI) (a profitability
measure) and how soon the investment can be recouped; a
breakeven point in months is
desirable. Clearly, an alternative with a shorter breakeven point
is more attractive to an
organization with scarce resources, such as a physician group
considering the addition of
“in house” magnetic resonance imaging (MRI) diagnostic
services. A higher ROI is more
attractive when increased profit is a critical measure of
performance. It may make sense
to choose a strategy that requires a higher investment if that
investment can be recouped

quickly and yields a higher return.
Organizational Culture
An organization might choose an alternative that suits its
existing organizational culture
over one that requires a cultural change for the strategy to
succeed. Ideally, an HSO’s
existing culture does not constrain its choice of strategy. Just as
“form follows function,”
so also does “culture follow strategy.” Changing the culture to
support the right strategy
might be preferable to limiting an organization to a strategy that
fits the existing culture.
Imagine what might have occurred at
Charlotte Memorial Hospital had the
culture not changed to embrace the
growth required to meet its mission
of taking care of all citizens regard-
less of their ability to pay.
Often, shifting the organizational cul-
ture is necessary when new strategies
are required. If this does not happen,
“the traditional culture—the beliefs,
the practices and ‘the way things are
done around here’—will override the
new direction and prevent innova-
tion and positive change” (Browning,
Torain, & Patterson, 2011, p. 12). If an
organization is trying to change its
strategy with the presumption that
the culture will also change, it may
find the strategy almost impossible
to implement because the unchanged culture is impeding it. It is
well known that chang-

ing an organizational culture is exceedingly difficult and, for
large organizations, takes a
lot of time (recall the discussion in Chapter 2). If every
alternative considered requires the
culture to change, the alternative that matches the existing
culture the most and would
therefore require the least change should, perhaps, be chosen.
© Royalty-Free/Corbis/Fuse/Thinkstock
Organizational culture—which may involve attitudes
regarding who socializes with whom both in and outside
the workplace—is often extremely difficult to change,
especially in large HSOs.
spa81202_07_c07.indd 200 1/15/14 3:51 PM
Characteristics of Successful Strategies
Beckham (2000) proposes seven key characteristics of effective
strategy. These success
characteristics can help HSOs choose among alternatives:
• Sustainability: Does it have lasting and greater long-term
impact than other
alternatives?
• Performance improvement: Will it result in significant
improvement in key
measures of performance?
• Quality: Is it a provably better strategy than those of

competitors?
• Direction: Does it advance the organization toward a defined
goal?
• Focus: Is it targeted and does it offer a reasonable choice for a
particular course as
compared to other attractive alternatives?
• Connection: Do its elements offer a high level of
interdependence and synergy?
• Importance: Is it significant or fundamental to the
organization’s mission,
although it may not be essential to organizational success?
As you can see, there are many questions that an organization
must consider when select-
ing among strategic alternatives. Which alternative will most
help the HSO maintain or
increase its patient satisfaction lead over its competitors? Or
give it the quality advantage
it never had? Or help it become more innovative and
technologically competitive? As
more HSOs realize that new markets lie in foreign countries,
developing a global presence
could become a prime factor.
Clearly, some characteristics make sense only for some
organizations in certain situations
while others apply to almost all HSO situations. The success
characteristics you ultimately
use in your analysis must fit the organization you are analyzing.
For example, to some
organizations, profit is the primary indicator of success.
Elsewhere, success may be mea-
sured by the health improvements of the community, the
percentage of services provided

to indigent patients, or the reduction of hospital readmissions.
Many of the considerations discussed in this section do not fit
the circumstances of public
health entities. The process of strategy formulation in a county
or city health department,
for example, might involve considering the following factors
when selecting among sev-
eral strategic alternatives:
• Cost or return on investment
• Availability of solutions
• Impact of problem
• Availability of resources (e.g., staff, time, money, equipment)
to solve problem
• Urgency of solving problem (swine flu or significant air
pollution)
• Size of problem (e.g., number of individuals affected)
(National Association of
County and City Health Officials, n.d.)
Case Study: Kansas Tobacco Prevention Workgroup for Specific
Populations illustrates how one
group evaluated alternative strategies for addressing a public
health concern.
spa81202_07_c07.indd 201 1/15/14 3:51 PM
Case Study: Kansas Tobacco Prevention Workgroup for Specific
Populations

In 2007, the Kansas Department of Health and Environment
hosted meetings of a workgroup
formed for the purpose of identifying critical issues and
developing a strategic plan for tobacco
use prevention among subpopulations that experience the
greatest health burden from tobacco
use and exposure. This workgroup, entitled the Kansas Tobacco
Prevention Workgroup for Specific
Populations, included representatives from HSOs, schools,
youth programs, churches, public health
centers, and other community social agencies (Tobacco
Prevention for Specific Populations, 2013a).
At the first meeting, the workgroup discussed the
subpopulations to be the focus of its efforts and
issues facing the health department in reducing tobacco use in
these populations. A nominal group
process (multi voting) was used to select the following critical
issues:
• Collaboration/partnership
• Funding
• Marketing/counter marketing (media)
• Data
• Trust/building capacity/outreach/resource center
• Population-specific interventions that can be integrated into
other programs
(education)
• Advocacy and policy development
• Addressing systemic changes (silos) (Tobacco Prevention for
Specific Populations,
2013b, p. 3)
At the second meeting of the workgroup, participants used the

criteria below to select alternative
strategies for reducing tobacco use in specific subpopulations:
• Urgency: Is this a priority issue that needs
to be addressed in the next 1–3 years?
• Potential Impact: Is it likely that address-
ing this critical issue will have a significant
impact on one or more specific popula-
tions? Do you have reason to believe you
can be successful on this issue?
• Actionable/Feasible: Are there oppor-
tunities for action to address the critical
issue? Is there room to make meaningful
improvement on the issue?
• Resources: Are resources (funds, staff,
expertise) either readily available or likely
to be obtained in order to address the
critical issue? Are there resources through the state and
community members to work
on the issue? If not, can resources be acquired?
• Community Readiness: Is this a critical issue identified as
important by the community?
Are people in the community interested in the issue? Is there
community momentum
to move this initiative forward?
• Integration: Is there opportunity for collaboration? Is there
opportunity to build on
existing initiatives? Will this duplicate efforts? (Tobacco
Prevention for Specific Popula-
tions, 2013c, p. 11)

BELMONTE/BSIP/SuperStock
Public health initiatives by state and
local groups are improving the health of
communities throughout the United States.
spa81202_07_c07.indd 202 1/15/14 3:51 PM
CHAPTER 7Section 7.2 Criteria Matrix
7.2 Criteria Matrix
One method that has been developed as a tool for evaluating
strategic alternatives is called
the criteria matrix. It entails choosing five or six criteria most
important to the organiza-
tion and assigning a numerical rating as a means of identifying
the best strategy. Another
benefit of creating and using the criteria matrix is to use it as a
worksheet in developing
defensible and persuasive arguments for your preferred strategy.
Experience has shown that using five or six criteria to evaluate
the strategies makes the
most sense. This range works because using too few criteria
fails to capture the complex-
ity inherent in the strategies, and using too many runs the risk
of introducing conflicting
criteria, which dilutes the effect of each criterion on the final
outcome.
The criteria to use are entirely up to your management team.
“Playing” with several crite-
ria can be a useful way to learn of the strategies’ sensitivity to
various combinations of cri-

teria. When necessary, managers should supplement this
analysis with detailed forecasts
and analyses. For example, to assess which strategy might yield
the most revenue growth
were each one implemented, the team should conduct a more
detailed revenue forecast
for each strategy over the planning horizon (3 to 5 years). Even
though such projections
are still estimates and based on assumptions, they require more
reflection and thought
than mere guesses.
Notice also that many of these selection criteria address the
purpose for doing strategic
formulation in the first place and what the organization
perceives as success. It is fitting
that criteria used to chart the future direction of the HSO be as
important to an organiza-
tion as its fundamental purposes and what it views as success.
The criteria matrix allows organizations to evaluate strategic
alternatives against multiple
criteria using a scoring system that enables the results to be
added up at the end. Small
HSOs may be faced with just a few or less complex strategic
alternatives. In these situa-
tions, a simple criteria matrix might work just fine. The criteria
matrix used by the Kansas
Tobacco Prevention Workgroup for Specific Populations to
select among alternative strat-
egies is illustrated in Table 7.1. The workgroup ranked each
strategy according to criteria
1. Many candidates for possible strategy selection criteria were

presented in this section. It
makes sense that the criteria should be related to the HSO
purposes or what “success”
means to the organization. Which of the criteria discussed have
little or nothing to do with
purposes?
2. Why were the criteria in question 1 included in the list of
possibilities?
3. Which of the criteria discussed would be most useful for a
hospital in differentiating among
strategic alternatives? Which would be most useful for a
physician clinic? For a publicly
funded community health center?
spa81202_07_c07.indd 203 1/15/14 3:51 PM
that had been established (see Case Study: Kansas Tobacco
Prevention Workgroup for Specific
Populations) using the following scale: High = 3 points,
Medium = 2 points, Low = 1 point.
The top three strategies with the highest points were identified
and then discussed to be
sure there was group consensus before moving forward with
planning.
Table 7.1: Simplified strategy prioritization matrix
Criteria
Urgency Potential

Impact
Actionable/
Feasible
Resources Community
Readiness
Integration Total
Points
Alternative A 3 2 3 1 3 2 14
Alternative B 1 2 3 2 2 3 13
Alternative C 2 3 3 2 3 3 18
Alternative D 3 2 2 1 3 2 13
Source: Tobacco Prevention for Specific Populations (2013d).
Strategy Prioritization Matrix. Retrieved from
www.healthykansans2010
.org/tobacco/meeting2.asp, p. 2.
An example of a matrix that might be used by a large, publicly
traded HSO is illustrated
in Table 7.2. The first step is to choose a set of criteria that
makes sense for the HSO. These
may include some of those criteria described in the previous
section and perhaps others
relevant to the organization and its present circumstances.
The next step is to assign a rating to each criterion on a 10-
point scale. Some criteria are
positively correlated and some negatively correlated. These are
indicated with a (P) or

(N) in the matrix. An example of a positively correlated
criterion is revenues: An alterna-
tive that might yield high revenue growth is good for the HSO,
but low revenue growth
is bad. The two go in the same direction so to speak (high
growth = good, low growth =
bad), so the criterion “revenue growth” is positively correlated.
In such instances, the rat-
ing would range from 0 to plus 10. A neutral alternative would
be scored 0, whereas an
alternative that would be strongly favorable to the HSO might
be a 9 or a 10. An example
of a negative correlation is “size of investment required”: An
alternative requiring a lot of
investment is “bad” for the HSO, but a small investment
requirement is “good.” The two
go in opposite directions (a lot = bad, little = good). For a
negatively correlated alterna-
tive, the rating would range from 0 to minus 10. Thus, an
alternative that is not risky at
all would get a 0 score, one that is moderately risky a score of
perhaps minus 5, and an
extremely risky one perhaps minus 7 to minus 10. Table 7.3
lists examples of positively or
negatively correlated criteria.
The rating scores are subjective estimates; the absolute value of
the rating is not as impor-
tant as spacing them according to an estimate as to how close or
far apart the alternatives
are. It is the relative ratings that are critical. The alternatives
are rated against each crite-
rion independently of any other criterion. When all the ratings
are done, the scores are
spa81202_07_c07.indd 204 1/15/14 3:51 PM

added up to see which alternative has the higher (if evaluating
two) or highest total score.
Table 7.4 offers an example of how this might be done.
Table 7.2: Criteria matrix for evaluating alternative strategies in
publicly traded HSOs
Criteria Alternative A Alternative B Alternative C
Revenue growth 8.0 8.0 9.0
Profitability 7.0 7.5 8.5
Shareholder value 8.0 7.0 8.0
Riskiness -8.5 -8.0 -8.5
Investment required -7.0 -9.0 -9.5
Change in culture
required
-6.5 -8.0 -6.0
Totals 1.0 -2.5 1.5
Table 7.3: Examples of positively and negatively correlated
criteria
Positively correlated Negatively correlated

Revenues or revenue growth Capital investment required
Contribution to shareholder value Change in culture required
Return on investment Time to break even
Adverse effect on competitors Overall riskiness
Strength of value proposition
Gaining or extending a competitive advantage
Increasing bargaining power
Advancing mission
Table 7.4: Criteria matrix revised from Table 7.2
Criteria Alternative A Alternative B Alternative C
Revenue growth 7** 8 9*
Profitability 7** 8 9*
Shareholder value 6** 7 9*
Riskiness -7 -8 -9
Investment required -7 -9** -8
Change in culture
required
-7 -9** -6*
Totals -1.0 -3 4

* Reasons to select ** Reasons to reject
spa81202_07_c07.indd 205 1/15/14 3:51 PM
In Table 7.2, the strategic alternative that receives the highest
total is option C. However,
option A’s total score is so close to C’s that it makes arguing
for C being the best alterna-
tive open to question. This is where
other considerations come into play.
If market share or profitability is par-
ticularly important to the HSO (reve-
nue growth), or if the HSO is strongly
averse to changing its culture, then
the analysis would suggest option C.
But the table also shows that option
C requires the most investment, and
if the organization is unable to raise
the needed capital, that could be the
one reason to reject it.
To avoid a situation where there are
two alternatives that achieve almost
equal ratings, the choice of criteria
and assigned ratings are revised until
there is a clear winner by at least
three points. While this appears to be
“fixing” the result, the process is still
in “analysis” mode, which means that managers are free to try
different criteria and rat-
ings until they are satisfied they have a defensible strategy.

After all, defending and being
comfortable with the choice of strategy is what this whole
exercise is about. It is that ulti-
mate defense before top management or the board of directors
that will keep anyone from
“fixing” the ratings to yield a preordained result. A preordained
or poorly argued result
can be spotted a mile away and will damage its proponent’s
credibility. So while this
analysis is being done, it is important to remember to choose
only that alternative that can
be supported persuasively; the scoring system will help in that
regard. The criteria matrix
and the associated process of selecting criteria and rating
strategies against them is simply
an opportunity to develop arguments to defend or “sell” the
preferred choice to others.
The danger with using such a quantitative yet still subjective
method to choose among
strategic alternatives is that it invites criticism precisely
because one person’s criteria and
ratings may not match anyone else’s. The results are sensitive to
the criteria chosen. Using
shared or consensus ratings within a group is one way to get
around this problem and
to try out different combinations of criteria. The principal value
of the criteria matrix,
however, is to force planners to test their choice of alternatives
against different criteria in
case other people believe such criteria are important. In the case
of disagreement, those
who have gone through this exercise will have “done their
homework” and will be able to
discuss—and perhaps refute—other people’s points of view.

In comparing Tables 7.2 and 7.4, note that the latter uses only
whole numbers; because the
ratings are “educated guesses” in the absence of any data,
estimating to one place of deci-
mals belies a level of accuracy that is often not there.
Arguments involved in the selection
of a strategy consist of two parts: (1) reasons why the preferred
strategy was chosen and
Jiang Jin/SuperStock
When evaluating strategic alternatives, choose only
the strategy that can be supported and defended
persuasively before top management.
spa81202_07_c07.indd 206 1/15/14 3:51 PM
CHAPTER 7Section 7.3 Determining Objectives
1. The section advises that one should use 5–6 criteria in a
criteria matrix. Discuss arguments
of your own concerning why using a smaller or larger number of
criteria would or would
not work.
2. Would using more criteria produce a different result? Would
it inspire more or less confi-
dence in the result?
3. Compare the rating scales used in the Table 7.1 matrix and in
the Table 7.2 matrix. How
would using a 3-point scale versus a 10-point affect the

prioritization process?
4. Assume you have developed a good criteria matrix and are
now working on a convincing
argument for your winning strategy. But what the criteria matrix
reveals, in your opinion,
doesn’t make for a convincing argument. What do you do?
5. The overarching purpose of a criteria matrix is to choose a
preferred “best” strategy and
argue persuasively to others (perhaps even yourself) that it is
the best one. Can you think
of another method or process that would lead to the same result?
Explain it.
(2) reasons why the other two were rejected. The best ratings in
the table are highlighted
in the winning strategy. Thus, in Table 7.4, if option A was
“forming new partnerships,”
option B was “developing new services,” and option C was
“expanding nationally,” the
argument would look like this:
The organization should expand nationally because doing so
would gener-
ate the most revenue growth and profitability, increase
shareholder value
the most, and require the least culture change. Forming new
partnerships
would generate the least revenue growth and profitability and
increase
shareholder value the least, while developing new products
would require
the most investment and culture change.
Here’s a final comment on strategy analysis using the criteria

matrix. It could be that the
strategy chosen best meets all the criteria and one of the other
two strategies falls short of
all the criteria. This means a couple of things: (a) the winning
strategy is so much better
than the others and the one that falls short of all the criteria is
so much worse than the
others that it reflects badly on how the strategy alternatives
were selected in the first place
(they are all supposed to be good, viable strategies), and (b) the
third strategy is left with
no reason to reject it, which also hurts the argument. In such a
case, the criteria matrix
should be reworked so that the winning strategy is still the one
that would prevail but
would not be better than the other two on all criteria.
7.3 Determining Objectives
Now that strategies have been selected, the planning process
enters the recommendations
phase. Recommendations include setting organization-wide
objectives, defining strategic
intent, identifying key programs to achieve the objectives, and
exploring triggers and con-
tingencies if things do not go as planned. Creating or revising
mission and vision state-
ments is also part of this final phase if the organization’s
existing statements are no longer
valid, or if the organization has never had them before.
spa81202_07_c07.indd 207 1/15/14 3:51 PM

An objective is a quantitative target to be achieved within a
specified time frame. Typi-
cally, the most common objectives in HSOs fall into these
categories:
• Better-quality care
• Improved patient safety
• Improved capacity
• Secure financial future
• Better management of human resources
• Improved customer service
It may seem odd to some that set-
ting objectives comes after choosing
a strategy. They may find it more
logical to first set objectives and then
choose a strategy to achieve them.
Ideally, they should be set together,
that is, iteratively until they fit with
each other. But that is hard to do.
Deciding on a strategy first makes
sense for three reasons. First, it fol-
lows naturally from identifying the
organization’s key strategic issues,
which in turn follow logically from
the situation-analysis phase. Second,
the selection of strategic alternatives
creates a roadmap or direction for the
HSO. Then, attention can be turned
to deciding how far and how fast to
go along that road (i.e., objectives).
Last, deciding on the strategy first allows many criteria to be
used, enriching the assess-
ment and ultimately the choice of strategy.

In addition, there are two problems with setting organization-
wide objectives first. Where
does the objective—the quantitative target—come from? Other
than the case where the
current strategy is being continued, setting an objective first
lacks a context. For example,
to meet a 20% revenue growth objective in 2 years may be
possible by expanding into
other states, but not by investing more in human resource
development. Yet the latter may
be the better strategy in the long run. Wouldn’t it make more
sense to ask which of the two
was capable of fulfilling the organization’s mission over the
next several years?
The second problem with setting objectives first is their
influence on strategy choices. For
example, what if 20% revenue growth is the sole criterion for
picking a strategy? How
likely is the organization to consider any strategies that might
not advance this objective?
Wouldn’t it make more sense to use revenue growth in this
instance as one of several
important criteria? Would one be as content to achieve only the
revenue-growth objective
if the organization were also scoring low in quality and patient
satisfaction results?
© ayzek/iStock/Thinkstock
Ideally, objectives and strategies should be set together,
but when this is difficult to do, it makes sense to choose
strategies first.
spa81202_07_c07.indd 208 1/15/14 3:51 PM

Some HSOs first set objectives and then evaluate strategic
alternatives. One example
is the 2011 winner of the Baldrige National Quality Award in
the healthcare division,
Schneck Medical Center, Seymour, Indiana. This hospital
formulates strategies every
3 years. From November to February, senior leaders and the
board of trustees do a com-
prehensive assessment of internal and external factors to arrive
at the strategic direc-
tion. The next 2 to 3 months are spent developing strategic
objectives and alternatives.
The potential objectives are identified first and then strategic
alternatives are selected to
achieve the objectives. The impact of the alternatives and
feasibility are evaluated before
final decisions are made (Schneck Medical Center, 2011).
In the end, whichever one is done first—the strategy or the
objectives—they must both
match and be consistent with one another. The strategy
determines how the HSO will
compete and where it is going, while the objectives determine
what the organization can
achieve given its resources, capabilities, and aspirations. Great
care must be taken to dis-
tinguish objectives from strategies. For example, executives
often talk of “high growth,”
“moderate growth,” and “low growth” strategies. Clearly, these
growth “strategies” are
really objectives reflecting a high, medium, or low increase in
revenues. The full range of

possible business strategies was covered in Chapter 3.
Establishing Organization-Wide Objectives
While the model presented in this section advocates setting
objectives after deciding on a
preferred strategic alternative, the two must be so well matched
that an observer would
imagine that they were done together. It is impossible to
evaluate or judge a strategy
without knowing what the objectives are, and likewise
impossible to judge whether the
objectives make sense without knowing how they are to be
achieved (the strategy) (Collis
& Rukstad, 2008).
Consider this example: A hospital decides to pursue an
accelerated new service-development
strategy and, at the same time, change its fairly conservative
culture into an innovative one
that also values quality. Is this a good strategy? It is impossible
to tell unless you also know
what the hospital is trying to achieve—that is, know its
objectives. If you were now told that
in 3 years’ time the hospital expected outpatient volume to
double and profits to increase by
20% and that it had the resources to carry out this preferred
strategy, one now has a basis for
either criticizing the strategy or believing that it will work (or
even criticizing the objectives).
So a strategy without objectives is meaningless.
Consider a second example: A state health department wants to
increase by 20% the use
of community-based residential care facilities by seniors on
Medicaid as an alternative

to nursing home care. This objective is to be achieved in 2
years. Is this is a good objec-
tive? Again, it is impossible to tell unless you know how the
health department intends
to achieve it, which means knowing its strategy and programs.
Merely trying to increase
seniors’ use of community-based residential care, without a
sufficient number of facilities
being available and without providing adequate reimbursement,
is likely to be insuffi-
cient. It will take a well-thought-out strategy to give an
observer confidence that the objec-
tive could and would be achieved. Again, objectives without a
strategy are meaningless.
spa81202_07_c07.indd 209 1/15/14 3:51 PM
The objective set by the Kansas Tobacco Prevention Workgroup
was the following: By
June 30, 2009, a minimum of three population-specific
interventions will be disseminated
statewide to at least 75 organizations reaching specific
populations. The strategies selected
by this workgroup were expected to achieve this objective.
Setting measurable, organization-wide objectives is a three-step
process. First, a small
number of high-priority objectives are selected. Next, annual
expectations are defined for
these objectives, and, lastly, objectives are matched up with the
preferred strategy.

Limiting the Choices
Decide on a small number of measures critical to firm
performance. These might typi-
cally include revenues, patient volumes, quality measures, and
the like. There is no rule
as to how many objectives an organization should have. But the
more it has, the more
difficult it becomes to achieve them
all and the more likely it is that some
objectives will conflict with others;
that is, achieving one will result in
not achieving another. About three
to four organization-wide objectives
is typical.
Remember from Chapter 6 that
some HSOs use the Five Pillars in
the Studer Model as a grouping for
strategic alternatives (Studer, 2004).
Often these HSOs also identify strate-
gic objectives for each pillar. Schneck
Medical Center has four pillars of
excellence: quality care, customer ser-
vice, fiscal and operations, and human
resources (Schneck Medical Center,
2011).
Do not include cost reduction objectives as one objective,
because any efforts to reduce
costs will show up in improved profit; cost reduction objectives
are important only at
an operational and not a strategic level. Similarly, do not
include operational or pro-
grammatic objectives, such as number of new clients for a
particular service, percent-
age of surgical patients developing complications, or average

wait time in the emergency
department. While these measures are important, they should
not be included in the set
of organization-wide strategic objectives.
Examples of measures and objectives used by a hospital in the
northeastern United States
in four strategic categories are found in Table 7.5 (Spath, 2005).
Note how the hospital
leaders clearly explain what is being evaluated in the measure
definition.
© orcea david/iStock/Thinkstock
Cost reduction should not be one of your strategic
objectives; any effort to reduce cost will show up in
improved profit.
spa81202_07_c07.indd 210 1/15/14 3:51 PM
Table 7.5: Measures and objectives for four strategic categories
in a hospital
Strategic
category
Measure Measure definition Strategic objective
Quality Patient restraints The extent to which patients placed
in restraints (any type) have certain
elements required by Medicare
documents in their records

100%
Customer service Pain
management
The extent to which staff members
assess, treat, and educate patients
about pain
Two or more standard
deviations above
the mean for other
hospitals in the nation
Financial Days cash on
hand
The number of days the organization
could pay its cash operations and
expenses if none of the accounts
receivable were collected
72 days
Operational Salaries and
benefits as a
percentage of
net revenue
The cost of salaries, wages, fringe
benefits, and contract labor as a
percentage of net revenue
48%

Source: Adapted from Spath, P. (2005). Leading your healthcare
organization to excellence: A guide to using the Baldrige
criteria.
Chicago, IL: ACHE Health Administration Press, pp. 129–130.
Establishing Annual Objectives
Decide on annual values for these critical measures for the next
3 years. This is difficult
to do well. Theory tells us that objectives, to be effective,
should be set at a “challeng-
ing” level; set too high, they demotivate because
people consider them impossible to achieve, and
set too low, they also demotivate because they are
too easily achieved. How does an HSO find that
perfect level? The following five-step process may
help.
First, extrapolate from historical data to estab-
lish initial values for each objective for the next
3 years. This is easier to do when you have at least
5 years of historical data available. Second, make
a list of external and internal forces or changes
that might act to decrease these beginning values
over time, such as intensifying competition, scar-
city of borrowed funds, a conservative culture, or
decreased Medicaid or Medicare reimbursement.
For each item, indicate, however subjectively,
the strength of the negative effect on the objec-
tive (high, medium, or low). Third, make a list of
external and internal forces or changes that might
act to increase these beginning values over time,
such as a new strategy, a new CEO, a change to
a more quality-focused culture, new efficiency
© Mika/Comet/Corbis

Determining objectives is like setting a
pole-vaulting bar; set it too high, and the
objectives will be considered impossible
to achieve. Too low, and they will not be
challenging. In both cases, the individual
will not be motivated.
spa81202_07_c07.indd 211 1/15/14 3:51 PM
initiatives, strategic alliances, or joint ventures. For each item,
indicate, however subjec-
tively, the strength of the positive effect on the objective (high,
medium, or low). Fourth,
compare the two lists and decide, for each objective, whether
the initial value deserves to
be increased or decreased and by how much, depending on the
extent to which the posi-
tive effects outweigh the negative effects or vice versa. In this
way, create a “first cut” of
each objective for each of the next 3 years.
Finally, get feedback from those who are going to be held
accountable for achieving the
objectives regarding whether the “first-cut” objectives are
challenging yet achievable
in the circumstances. In fact, get these people involved in the
other steps too. For some
HSOs, deciding on strategic objectives cannot be done unless
the whole range of opera-
tional objectives has been created, thought through, and
approved, to make sure that the

resources to achieve them are available and that they are
feasible to achieve in the time
frame specified. When operational objectives have been well
designed, achieving them
should result in automatically achieving the organization-wide
objectives.
Matching Objectives to Strategy
Check that the objectives match the preferred strategy. The
preferred strategy and the set
of objectives must be consistent with each other. For example,
if the strategy decided upon
is aggressive, the objectives set should also be aggressive. If the
strategy is a turnaround,
the objectives should reflect this unusual state, showing first
stabilization at a lower level
followed by growth consistent with the new strategy. If the
strategy is designed to main-
tain market position in a highly competitive, mature market, the
objectives should not
show high growth but rather reflect current conditions to a high
degree. If the strategy
requires a period of heavy investment before it pays off, the
objectives should reflect that
reality. Remember, the objectives indicate what the organization
considers to be successful
performance over time given the changing realities of the
industry, the marketplace, and
the HSO’s own strategies, resources, and commitments. Thus,
not achieving these objec-
tives means less-than-successful performance, while meeting or
exceeding them indicates
intended or superlative performance in the circumstances.
Other Types of Objectives

The preceding discussion has been about setting organization-
wide objectives. There are
also other types of limited objectives. Partial objectives cover
only part of some activ-
ity, like Medicare revenue versus total revenue. Functional
objectives pertain only to a
particular function, like increasing the number of patients in the
hospital’s cardiopulmo-
nary rehabilitation program. Operational objectives are either
subsumed by higher-order
objectives (like reducing costs) or are cross-functional, for
example, security or systems or
plant maintenance, none of which comes under any “function”
(see Table 7.6). All of these
other types of objectives will show up during implementation of
a strategy. The value of
understanding the differences is that at the strategic level, we
need organization-wide
objectives, not functional or operational objectives.
spa81202_07_c07.indd 212 1/15/14 3:51 PM
Table 7.6: Partial, functional, and operational objectives
Type of objective Objective Explanation
Partial Increase private insurance revenue by
10% per year
Increase volume in new services
introduced during the past 3 years to
10% of volume

Does not address all revenue
Does not address volume from existing
services
Functional Double the number of clinic locations Concerns only
marketing
Operational Redesign orthopedic services to reduce
purchasing costs by 5% per year
Reduce costs by 12% per year
Decrease number of patients
developing urinary tract infections
Concerns only orthopedic services
The higher-order objective of increased
net revenue takes this into account
This is an operational objective for the
medical staff and nursing
Objectives vs. Goals
In many HSOs, what we now under-
stand to be an objective is often
referred to as a goal (and vice versa).
To underscore the difference as used
here, a goal is defined as a qualitative
end state that an organization tries
to achieve, for example, “to become
more patient-centered.” Note that
progress cannot be measured, and

there is no specified time frame.
Why, then, do HSOs have goals?
Because goals are intended to inspire.
They should sound stirring to employ-
ees and to external constituents. The
following are some examples of goals:
• Become more innovative
• Listen to the voice of the
consumer
• Improve the health of the
community
• Provide safer healthcare services
• Be there for our patients
© Mitsu Yasukawa/Star Ledger/Corbis News/Corbis
This medical simulator at Newark Beth Israel Hospital
is used by doctors and nurses to help them better
understand the challenges faced by patients with heart
conditions. Providing employees with innovative training
technology is a goal that many HSOs strive to achieve.
spa81202_07_c07.indd 213 1/15/14 3:51 PM
• Grow our operations
• Develop a national presence
• Become more efficient
• Become lean and mean

• Streamline our operations
At the same time, precisely because they are not amenable to
measurement, goals let peo-
ple off the hook. There is no incentive to follow through. It has
been said that “you can’t
improve what you can’t measure,” and there is much truth in
that. Objectives are written
in such a fashion that organizational members will be able to
answer the question “Will
we know it when we see it or when it happens?”
Organizational consultants and authors Beebe, Mottet, and
Roach use four criteria for
objectives (2003). First, accomplishment of the objective must
be observable; we should
be able to see the results. Second, objectives must be
measurable; that is, some objective
metric must yield useful data indicating that an objective has
been met. Third, objectives
must be specific; a clearly written objective includes precise
guidelines for describing the
nature of the objective and the strategies and tactics required to
accomplish it. Finally,
objectives must be feasible and attainable. Organizations must
develop objectives based
on a realistic understanding of both internal and external
barriers to accomplishment.
1. Both in their public statements and in the way they are
managed, HSOs make extensive use
of goals and objectives. Assuming that they are defined as they
are in this section, do you
think that an HSO could be managed using just goals? Why or

why not?
2. Imagine an organization whose managers collectively set
objectives at a very conservative
level, knowing full well the objectives would be exceeded and
all of them would get hefty
bonuses as a result. How could this situation be avoided?
3. Is it possible for organization-wide objectives to be set last,
in effect adding up all the partial
and functional objectives? If it is, might that be better or worse
than setting them first?
4. Reward and incentive systems in some HSOs are attached to
attaining or exceeding certain
objectives. But little is said or publicized about what happens
when such objectives are not
achieved. What kinds of penalties would you suggest for not
achieving organization-wide
objectives and functional objectives? How would you gain
everyone’s agreement in the first
place for a system of penalties as well as bonuses and other
rewards?
5. If it didn’t already exist in an HSO, would developing a
system for penalizing failure to meet
organization-wide objectives be worthwhile?
6. Recall an organization you were part of (it need not be an
HSO). Did you have goals and
objectives? What were they? Were they taken seriously?
spa81202_07_c07.indd 214 1/15/14 3:51 PM

CHAPTER 7Section 7.4 Contingency Planning
7.4 Contingency Planning
Murphy’s Law states, “If anything can go wrong, it will.” An
extension of this axiom goes
like this: “It always seems to happen at the worst possible
time.” During strategy formula-
tion, it is a good idea to contemplate what could potentially go
wrong in the future. This
potential setback is termed a trigger. What the HSO would do
differently were the trigger
to happen is referred to as a contingency. We therefore talk
about “trigger–contingency
pairs,” typically one or two that pertain to next year—the short
term—and one or two that
could occur 3 years from now—the long term.
It is effective to express a trigger–contingency pair in the form
of a three-part sentence.
The three parts include the following:
• The external cause of the trigger: “If the state lowers
Medicaid reimbursement
rates, . . .”
• The quantitative trigger: “. . . causing revenues to lag
projections by 10%, . . .”
• The contingency: “. . . then the organization should increase
advertising to
patients with private insurance.”
When you string the three parts together, you get a sentence that
looks like this: “If the
state lowers Medicaid reimbursement rates, causing revenues to
lag projections by 10%,

then the organization should increase advertising to patients
with private insurance.”
You will find that this simple sentence meets all criteria for
creating a good trigger–
contingency pair.
In reality, organizations may have as many as 20 triggers and
contingencies “active” at
any time, assuming they do contingency planning, which
essentially involves outlining
trigger–contingency pairs. The planning horizon, however, can
vary considerably accord-
ing to the size of the organization and the industry. For
example, a company like Boeing
views the next several years as “short term,” about 10–15 years
as “medium term,” and
20–30 years as “long term.” For most HSOs, 3 years is the
standard for long term because
of the rapid pace of change.
Triggers
Triggers should be external, specific, and quantitative. Absent
these three qualifiers, the
organization will not know when to invoke the contingency
plan. It is no use saying, for
example, “If profits decline,” or “When things get tough.”
Decline how much? Get how
tough? Even when trying to address phenomena that cannot be
measured—such as a new
competitor in your service area, or the effect of healthcare
reform legislation—try to gauge
their effect on achieving your objectives. For example, if the
unknown phenomena were
to cause your patient volumes to decline, would you do
something differently if your

revenue fell below target projections by 10%, 15%, or 20%? In
this way, you will monitor
something you constantly measure and will then enact the
contingency plan at just the
right moment.
spa81202_07_c07.indd 215 1/15/14 3:51 PM
Triggers also come from assumptions you make about the future
that are “soft”—that is,
about which you lack confidence and that are external to the
organization. For example,
if you are engaged in strategy formulation and your HSO’s
profit is sensitive to the cost
of pharmaceuticals, you might not know what is going to
happen to these costs next year.
You may have tried to obtain information from various
economic forecasts on this vari-
able but, frustratingly, all of them differed in their predictions.
So here is something you
can do. Simply presume that pharmaceutical costs are not going
up next year (if market
indicators make that at least plausible), and base your planning
on that. However, because
the assumption is “soft,” create a trigger that admits the
possibility that costs could go up:
“If the cost of pharmaceuticals goes up by more than X
percentage points, then . . .” the
contingency plan takes effect.
Triggers can also emerge from the timing of various imminent
occurrences. For example,

if state legislators are considering a new tax on alcohol to
expand public health services,
you may be unsure if this would take place next year or 2 to 3
years from now. So create
your plans with your best assumption in mind—for example, no
alcohol tax increase will
be enacted during the period of the planning horizon. However,
because the assump-
tion is “soft,” create a trigger, too, that specifies, “If alcohol tax
increase legislation were
enacted within the next 2 years, then . . .” the paired
contingency will be enacted. Notice
that this trigger is quantitative. You can tell exactly when it
happens and can therefore
invoke the contingency plan. Similarly, you may want to do
something differently if two
competitors merge or if joint venture restrictions between
physicians and hospitals are
strengthened or lifted.
For HSOs focused on increasing volume or market share, it is
tempting and understand-
able to create triggers having to do with not meeting revenue
objectives. To do this once
is perfectly fine, but to have such a trigger every year gives the
impression of obsessive
focus in one area. Management’s role is directing and
coordinating the many aspects of
an organization to work together seamlessly to create value, and
indeed things could go
wrong in many areas, not just in failing to make a revenue
objective. A better approach is
to make a list of all the possible things that could go wrong or
where your assumptions
are soft, and choose the most likely of them as your triggers.
Try to choose a different trig-

ger for the long term from what is chosen for the short term. A
useful training exercise is
to create one trigger–contingency pair based on what might
cause a volume shortfall and
one a net revenue shortfall, stating one in the short term and the
other in the long term,
just to practice creating realistic trigger–contingency pairs.
Contingencies
Contingencies are precursors to contingency plans. They are a
response to a particular
trigger, what an organization should do differently if that
trigger occurred. Later, when
the strategic plan has been prepared for operational
implementation, the contingency
should be translated into a contingency plan complete with
details as to who is respon-
sible for it, its budget and schedule, and who must keep it
relevant as conditions change.
spa81202_07_c07.indd 216 1/15/14 3:51 PM
Good contingencies should follow three guidelines:
• Do not renege on the adopted “best” strategy. For example,
suppose Zoom-
Care (a chain of healthcare clinics described in Chapter 6)
chooses a strategy
involving market expansion, but there is reason to believe it
would be difficult
to implement and pull off. If patient volume were to drop more

than 10% from
target projections at any time, it should not set as a contingency
“Cancel the
market-expansion strategy and implement a differentiation
strategy.” If one
does that, one is in effect saying that the strategic alternative
chosen was not a
good choice, and its proponents will instantly lose credibility.
Besides, HSOs
cannot—and should not—be in the habit of changing their
strategies at the first
sign of adversity. Strategies typically take anywhere from 2 to 5
years to imple-
ment, and the organization must give the chosen strategy a
chance to succeed
by not changing it until there is absolute certainty it is not
working. For any new
or modified strategy being implemented that does not seem to
be working, it is
advisable always to suspect first the execution of the strategy,
not the strategy
itself. That way, the contingency should focus on operational
changes that could
be made to enable the strategy to succeed, not changing the
strategy itself. The
following are examples of possible operational changes:
○ Change the ad campaign or the advertising agency.
○ Replace the VP of Marketing (or any senior manager).
○ Do additional and specific market research.
○ Broaden the proposed geographic region for expansion.
○ Partner with retail pharmacies to increase consumer
awareness.
○ Seek joint ventures.
• Do not make something that the HSO is already doing the

contingency. Think
about it. What the HSO has been doing up to the time the
trigger is invoked
is what got it into trouble in the first place. If patient volumes
are not meeting
expectations, do not set as a contingency “Continue advertising”
or “Do more
community outreach.” The HSO is already doing those things,
and, clearly,
patient volumes are still down. So think of something it can do
differently, that
is, an adjustment to its operations or execution, one that can be
implemented
quickly, say, in a couple of months.
• Make the contingency a solution to the problem implied in the
trigger. If inad-
equate patient volumes are the problem, the contingency should
be directed
toward increasing volume, not profits.
Because contingencies are in fact back-up plans, they have to be
spelled out in great
detail. Plus, those responsible for developing them and carrying
them out must know
who they are and what they must do. Those details are added
during the operational
phase prior to implementation. Organizations that go this extra
mile of contingency plan-
ning will reap rewards in three ways. First, they will be better
prepared for specific uncer-
tainties than HSOs with no triggers and contingencies,
especially if they work to adjust
the contingencies over time as conditions change to keep them
current and workable.
Second, they will become more adept at anticipating what might

go wrong and come up
with better triggers and contingencies over time. Third, they
will appreciate the need to
be alert to key changes in the environment and their
organization and, over time, create
a more flexible culture.
spa81202_07_c07.indd 217 1/15/14 3:51 PM
CHAPTER 7Section 7.5 Keeping the Board of Directors
Involved
1. If “value” implies benefits accruing for a certain level of
costs, try to articulate the true value
of contingency planning to an organization.
2. Contingency planning is needed precisely because certain
assumptions about the chang-
ing environment might be “soft” and uncertain. Yet, because of
changing conditions both
inside and outside the HSO, contingency plans—both triggers
and contingencies—rapidly
go out of date. How often should an organization review its
contingency planning and keep
things current?
3. Triggers assume that progress toward objectives is measured
constantly and that actual per-
formance can be compared to plan performance, say, every
month. In your opinion, is this
true of most HSOs?

4. Typically, net revenues are computed quarterly at most and
are done so using accounting
principles. To the extent you agree with this, should net
revenues ever be used as a trig-
ger? Discuss.
7.5 Keeping the Board of Directors Involved
Strategy formulation is a critical part of strategic management
and singularly respon-
sible for directing or keeping the organization on the right path.
In HSOs that do strategy
planning, a top management team, led by the CEO and ideally
including key operational
managers, is responsible for doing the planning and
implementing the decisions made
during the process.
At the top of the organization is a board of directors with
fiduciary responsibility for the
HSO. Part of this responsibility involves policy decisions and
development of a strategic
plan that supports the organization’s mission and vision
(Harrison, 2010). The Blue Rib-
bon Panel on Governance Practices in an Era of Health Care
Transformation, sponsored
by the American Hospital Association (AHA) Center for
Healthcare Governance (2012),
identified several board practices critical to the future success
of healthcare organizations.
Several of these practices relate to board involvement in
strategy formulation:
• Ensure development of patient and family engagement
strategies.
• Actively oversee physician alignment/integration, engagement
and leadership

development strategies.
• Use results of community health needs assessment to set
strategy.
So what is the role of the board in planning and decision
making? The role and level of
involvement ranges, unfortunately, from almost nothing at one
end of the scale to taking
over completely at the other, and varies from organization to
organization.
A survey of governance at rural hospitals conducted by the
South Carolina Rural Health
Research Center (2010) found that fewer than half of the 304
respondents strongly agreed
that their boards understood and effectively used strategy
formulation for their hospitals.
The training of board members in strategic management was
considered a high priority
by CEOs and board members themselves.
spa81202_07_c07.indd 218 1/15/14 3:51 PM
CHAPTER 7Section 7.5 Keeping the Board of Directors
Involved
There are two scenarios where board involvement
is nonexistent or where it “rubber-stamps” execu-
tive decisions. In the first, there is a high degree
of trust between the board and the CEO and top
management. In the second, the board members
have been handpicked by the CEO and agree with
all his or her decisions. In many such cases, the

CEO is also the chairperson of the board, making
the relationship even cozier. While some organiza-
tions are fortunate enough to enjoy mutual trust,
nothing is wrong with the latter technically or
legally. Whether it is “right” is a matter of opinion.
At the other end of the scale, the board is very
actively involved in the planning process. At
Schneck Medical Center, a 93-bed nonprofit hos-
pital providing primary and specialized services
to the residents of Jackson County, Indiana, the
senior leaders and board of trustees are jointly
involved in completing a comprehensive analysis
of key factors, developing strategic objectives, and
selecting among strategic alternatives. In addi-
tion, the hospital’s medical executive committee
is actively included in strategy formulation. “As a
result, 90 percent of SMC’s physicians report that
they are engaged and aligned with the organiza-
tion” (Baldrige Performance Excellence Program,
2011, An empowered and involved workforce
section, para. 4).
To create its 2011–2015 strategic plan, the board of directors at
Mercy Hospital in Moose
Lake, Minnesota began the planning process by studying the
critical factors affecting
current activities and the hospital’s future direction. This
analysis, which included a
phone survey of 475 people in the community, led the board to
identify key initiatives
focused on quality, service, growth, human resources,
community, and finance (Mercy
Hospital, 2011).
Most HSOs operate somewhere in between these two extremes.

Because the efficacy of the
board-management relationship differs so much, it is difficult to
generalize. What would
be useful instead would be to summarize some things a board
could and should do to be
involved in the strategic planning process:
• If at all possible, the board should nominate a strategy
planning committee
whose responsibility would be to monitor the strategic decisions
being made by
top management and involve the whole board if circumstances
warrant.
• In the absence of a board-appointed committee, it may be
advisable to have at
least one board member present at all planning meetings as an
observer.
• Have the director of strategic planning—or the CEO if one
doesn’t exist—
send summaries of all reports and research done in preparation
for planning
meetings.
Stockbyte/Comstock/Thinkstock
The board of directors may “rubber-stamp”
executive decisions in two situations: when
there is a high degree of trust between
the board and the CEO, and when board
members have been handpicked by
the CEO and agree with all of his or her
decisions.
spa81202_07_c07.indd 219 1/15/14 3:52 PM

• Ask probing questions at board meetings of the CEO and CFO,
especially during
the strategy formulation process. If the board gets an inkling of
the direction in
which the CEO wants to take the organization and it disagrees,
and if each side
is adamant that its direction is right, it is the CEO who is
dismissed.
• Above all, it is the board’s fiduciary responsibility to ensure
that the direction
and strategy the organization moves in is in its best interest; it
has to do what-
ever it must to carry out that duty.
1. Somehow, the board of directors has to maintain good
relationships with the top manage-
ment of the organization and yet stay at arm’s length, so to
speak, to properly perform its
role of overseer. How can it best manage this tension?
2. Imagine yourself as a board member: You notice that all is
not right between the CEO and
the CFO and certain other board members. What would you do?
3. As a board member, you have a sudden insight as to what the
organization might do strate-
gically in the future. What do you do with this idea?

4. If the CEO and CFO are insider members of the board, is
there any justification for the board
appointing a strategic planning committee?
Summary & Resources
Chapter Summary
• The criteria matrix is a useful method for evaluating and
choosing among alter-
native strategies using a number of criteria. However, selecting
the criteria to
use is subjective and could affect the outcome. Criteria should
be related to what
“success” means to the HSO.
• Ideally, only five to six criteria are used to evaluate
alternative strategies, as too
few would fail to capture the complexity of a future strategic
direction and too
many would dilute the impact that each criterion would have on
the outcome.
• The criteria matrix consists of a table with the alternative
strategies and criteria
listed. A simple 1 to 3 scoring system might be effective in
some situations. In
other situations, a 0 to 10 scoring system can be used. The
magnitude of the rat-
ings is nearly as important as the relative ratings across
strategies. At times, the
ratings and even the criteria may need to be changed to ensure
the “winning”
strategies are clearly the best and a persuasive argument can be
made for adopt-
ing these strategies.

spa81202_07_c07.indd 220 1/15/14 3:52 PM
• Besides choosing a winning strategy, an HSO needs to make
strategic decisions
that include organization-wide objectives, strategic intent,
major programs, and
triggers and contingencies. Organization-wide objectives are
targets the whole
HSO is responsible for achieving, whereas functional objectives
apply only to
functional departments, partial objectives are subsumed under
other objectives,
and operational objectives are other kinds of nonstrategic
objectives. The latter
three types of objectives are operational, not strategic.
Objectives are quantita-
tive targets to be achieved in a specified time frame, whereas
goals are simply
qualitative end states to be achieved in the future that, while
they may sound
inspirational, lack incentives and accountability.
• Because things may go wrong despite the best planning, well-
managed HSOs
will do contingency planning. For each contingency, an external
assumption that
might be “soft” or uncertain (what could go wrong) is
identified. Then, a quantita-
tive trigger (when should the HSO do something different to
correct the situation
and what the HSO would do if the trigger were reached) is

defined. Organiza-
tions that prepare themselves in this way fare better than those
that do not.
• The board of directors has to be kept informed and involved
throughout the
strategic decision-making process. While their involvement
varies from hands-
off to taking over the strategic decision making completely,
boards would do
well to do some of the following: strengthen their relationship
with the CEO and
CFO (insider board members), appoint a planning committee, sit
in on planning
meetings, or receive summaries of all reports and research done
in preparation
for meetings.
Web Resources
http://www.ccl.org
The Center for Creative Leadership offers practical information
and cutting-edge research
on leadership issues, including development and implementation
of strategic plans and
contingency planning.
http://ctb.ku.edu/en/default.aspx
The Community Tool Box is a service of the Work Group for
Community Health and
Development at the University of Kansas. It contains free
information on creating healthy
communities, including techniques for planning and
implementing various public health
strategies.
http://www.healthykansans2010.org/tobacco

This website details the strategic planning work of the Kansas
Tobacco Prevention for
Specific Populations workgroup.
http://www.nist.gov/baldrige
The criteria for the Baldrige National Quality Award, including
requirements for strategic
management activities, are available on the Baldrige Program
website.
spa81202_07_c07.indd 221 1/15/14 3:52 PM
http://www.ccl.org
http://ctb.ku.edu/en/default.aspx
http://www.healthykansans2010.org/tobacco
http://www.nist.gov/baldrige
Key Terms
contingency Back-up plan and precur-
sor to a contingency plan. It is a response
to a particular trigger: what an organiza-
tion might do differently if that trigger
occurred.
contingency planning A process in which
one outlines what could go wrong in the
future (trigger) and what the organization
would do differently were that to happen
(contingency); good contingency planning
counteracts Murphy’s Law (“If anything
can go wrong, it will”).
contingency plan Plan that differs from

a contingency only in adding operational
details, like who is responsible for admin-
istering the plan, the budget and schedule,
and who must keep the plan current over
time.
criteria matrix A matrix for evaluating
alternative strategies using criteria impor-
tant to the organization. It uses a scoring
system that enables the results of each
criterion to be added up at the end. Abso-
lute ratings are not important, but relative
ratings are.
functional objectives Objectives that
pertain only to a particular function, like
increasing the number of clinic locations
(marketing) or reducing orthopedic service
purchases (only one functional area).
goal A qualitative end state that an orga-
nization tries to achieve. Unlike an objec-
tive, a goal is not measurable.
objective A quantitative target to be
achieved within a specified time frame.
operational objectives Objectives that
either are subsumed by higher-order
objectives (like reducing costs) or concern,
for example, reducing patient complica-
tions, none of which comes under any
“function.”
partial objectives Objectives that cover
part of some activity, like private insur-

ance revenue versus Medicare revenue,
or increased volume from new services
versus all services.
return on investment (ROI) A measure
of the rate of return on a particular invest-
ment. Profitability for a given time period
is a common ROI measure.
trigger–contingency pairs Phrases used to
describe something important that could
go wrong and how the HSO would then
resolve the issue.
triggers Potential setbacks experienced
by a company that are associated with
contingencies; triggers should be external,
specific, and quantitative.
spa81202_07_c07.indd 222 1/15/14 3:52 PM
Creating Strategic Alternatives
Learning Objectives
• Develop strategic issues from having performed a full
situational analysis.
• Communicate the different types of strategic alternatives.
• Explain why the key strategic issues and strategic intent

should match.
Chapter 6
CaiaImage/SuperStock
spa81202_06_c06.indd 173 1/15/14 3:49 PM
CHAPTER 6Section 6.1 Identifying Key Strategic Issues
This chapter shows how to develop a set of key strategic issues
that summarize the most
critical elements of the entire situation analysis and from such
issues create a small num-
ber of viable strategic alternatives for the HSO to seriously
consider. Refer to Figure 1.1
to review those steps that pave the way for the organization to
choose the best strategy.
6.1 Identifying Key Strategic Issues
Identifying key strategic issues is an act of synthesis. The HSO
leaders take what they
know about an organization and its changing environment (the
situation analysis) and
distill the critical questions and issues the organization must
address in its strategic plan.
Strategic issues derive from both external and internal sources.
The former includes the
healthcare industry, regulatory requirements, competitors,
consumers, suppliers, oppor-
tunities and threats, and other environmental forces. The latter
includes key organiza-
tional resources, culture, technology, or strategic decisions that
the HSO must address.
Consider the situation of MedCath Corp. described in a Chapter

5 case study. Starting in
2003, the organization faced several key external strategic
issues, including changes in
regulations affecting physician ownership of hospitals and
lowering of reimbursement for
cardiac procedures. At the same time, the company began to
experience some key internal
strategic issues, which included a lack of financial reserves and
a business culture that
was slow to diversify into noncardiac services.
Candid Deliberations
All HSOs face key external and internal issues. Together, these
strategic issues form the
basis for generating the strategic alternatives. Too often,
alternatives are generated from
only a subset of these categories,
which means leaving out a lot of infor-
mation that is probably known and
should be considered. For instance,
MedCath changed its business model
from building hospitals to partnering
with existing hospitals in response
to regulatory changes, but it failed to
adequately respond to other key stra-
tegic issues.
The strategy development process
is not a time to pull punches or shy
away from the truth. As Dennis
Rheault, Motorola’s former vice presi-
dent of corporate strategy and devel-
opment, wrote, “The purpose of an
effective strategy development pro-
cess is not to avoid but to confront

uncertainty: to pose the really tough
questions that you do not have the answers to—the issues and
opportunities that can make
or break the business” (Rheault, 2003, p. 33). This is not a time
to parrot what the CEO wants
Juice Images/SuperStock
The strategy development process is a time to pose
tough questions, unearthing the real issues that the
organization must confront.
spa81202_06_c06.indd 174 1/15/14 3:49 PM
Case Study: Magnolia Hospital’s Strategic Issues
Magnolia Hospital is a 50-bed publicly funded district hospital
located approximately 40 miles from
a metropolitan area with several hospitals. Following the
hospital’s bankruptcy in 2001, the citi-
zens in the county voted to purchase the hospital and keep it
open with county tax support. At the
time ownership was transferred to the public, the hospital was
debt free with 17.5 days of cash in
the bank. The new leadership was focused on survival and
having enough money to make payroll
each week. Through the hard work of managers and physicians
in the community, the hospital
was eventually able to turn around financially. Its reputation as
a quality provider slowly improved
among the county residents, although many people still traveled
to the metropolitan hospitals to

receive care.
After the CEO retired in 2009, the new CEO, Jack Sullivan,
began to discuss various market share
growth options with managers, local physicians, and
representatives from health-related commu-
nity services. During these discussions, Sullivan assessed the
climate and the willingness of hospital
staff and physicians to be more supportive of directing patients
to Magnolia Hospital.
(continued)
to hear. Unless strategic issues are real and phrased in plain
terms, the resulting strategic
alternatives will likely not be in the HSO’s best interest. Having
strategic conversations with
colleagues or outside experts over the course of a year will help
to unearth the real issues that
the organization must confront. As has been emphasized earlier,
this process is most fruitful
if it is undertaken on an ongoing basis rather than as an annual
exercise.
Even after identifying a strategic issue, determining whether it
is really critical is still dif-
ficult. It is useful to think of a critical issue as something that
keeps the CEO up at night.
Andy Grove, former chairman and CEO of Intel, describes
himself as quite a worrier in
his book Only the Paranoid Survive. While he served as Intel’s
CEO, Grove says, various
uncertainties kept him up at night, ranging from problems with
chip manufacturing to
threats from competitors to the company’s inability to attract
and retain talented employ-

ees. He believed strongly in the value of paranoia (Grove,
1999). Use this imagery as a
way of pruning from the list of alternatives those that do not
merit such obsessive atten-
tion. Try also looking at a particular strategic issue in relation
to others on the list; is it as
important or less important? Ultimately, the final decision is
subjective; what one person
might consider critical, another might cross off the list. More to
the point, a CEO or top
manager should rely on gut instincts when creating the list of
strategic issues: What are
the real issues, problems, or dilemmas facing the firm (Roberto,
2009)?
An organization’s list of strategic issues may be either too
limiting or too broad. To inform
the strategy effectively, the issues must be thoughtfully
generated and edited. Case Study:
Magnolia Hospital’s Strategic Issues summarizes how a recently
hired hospital CEO and
top management team wrestled with strategic issues facing a
small district hospital in
the southeastern United States. The identity of both the hospital
and the individuals has
been masked.
spa81202_06_c06.indd 175 1/15/14 3:49 PM
Case Study: Magnolia Hospital’s Strategic Issues (continued)
Because the organization had been facing financial difficulties

for so many years, there was
an underlying culture of “survival of the fittest” among
individuals, departments, and physi-
cian groups. The CEO realized that the past focus on blaming
others and putting out “fires” had
to change.
He was also struck by the seeming lack of awareness about the
potential for Magnolia Hospital to
become the provider of choice for people in the community. For
the most part, the previous CEO
and board members had jointly set the hospital’s strategy, with
managers and physicians excluded
from these discussions. Among managers and physicians, there
was a general sense of inevitability
that Magnolia Hospital would never be able to attract business
away from urban hospitals.
Sullivan felt strongly that the hospital and its physicians could
jointly build organizational capacity
where excellence is the way of doing things. This would
translate into more business for every-
one as fewer people in the community would feel the need to
travel out of the county for their
healthcare needs. To realize this goal, the CEO would need to
change entrenched attitudes among
hospital employees and physicians.
Key strategic issues identified during the situational analysis
conducted with management and key
physicians in the community included the following.
Should Magnolia Hospital
• seek to be the state’s leading rural hospital?
• stay the same size or grow through joint ventures with urban

hospitals?
• convert some inpatient beds to skilled nursing beds?
• sell the facility to a larger health system?
• go to the county voters with a bond issue to build a new
facility with expanded
outpatient services?
• invest more in our human resources
through expansion of education and
growth opportunities?
• hire hospitalists to care for inpatients?
• add video telemedicine capabilities?
• contract with urban specialists to travel
to our community once a week to see
patients?
By involving physicians and hospital management in
discussions of key strategic issues, Sullivan began to
break down the tensions that had existed for years
between these two groups. Although it didn’t hap-
pen overnight, managers and physicians learned
that collaboration rather than confrontation was the
best way to advance everyone’s agenda.
(continued)
© Peter Spiro/iStock/Thinkstock
Creating a hospital environment where
excellence is the way of doing things is
sometimes a matter of changing entrenched
attitudes.

spa81202_06_c06.indd 176 1/15/14 3:49 PM
Strategic Conversations
A strategic conversation is a free-ranging discussion on a topic
of strategic interest to
an organization. Because of its characteristic “no-holds-barred”
freedom to say whatever
needs to be said, it invariably produces ideas and thinking that
are ultimately useful for
creating strategies that might not be captured in any formal
process.
All major strategy formulation, according to Peter Schwartz,
cofounder of the Global Busi-
ness Network, does not, in fact, take place during the planning
process (Abraham, 2003).
What goes on in a formal process is almost always a ratification
of what has already hap-
pened. A strategic conversation often takes place entirely
informally. Schwartz’s colleagues
at Bell South used to call it the HERs process—hallways,
elevators, and restrooms—because
that is where the most interesting conversations take place.
While real decisions were made,
real issues were confronted, and real
knowledge was developed, almost all
of it took place in this conversational
mode. And that is how real learning
also takes place. If an HSO is to have
successful strategies, it involves good

learning—learning about new reali-
ties, new facts, new competition, new
opportunities, new directions—and
challenging old knowledge. It is point-
less to simply list a set of new objec-
tives for the coming year as if nothing
has changed. The problem is that if
everything has changed, the decision
makers who must come up with a
plan must understand those changes.© Rick
Gomez/Solus/Corbis
Often, many of the most important decisions are made
during informal conversations that take place in hallways,
elevators, and restrooms.
Case Study: Magnolia Hospital’s Strategic Issues (continued)
Questions for Critical Thinking and Engagement
1. When you consider the history of Magnolia Hospital, do you
believe Sullivan’s initial
assessment was appropriate? Why or why not?
2. Based on your reading and analysis of this brief case, was the
list of key strategic issues
thorough enough? Was anything left off the list that should have
been there?
3. The case study ends on a note of success, but what “fallout”
might you expect based
on the background you were given? Be as specific as possible.
4. Comment on Sullivan’s practice of including hospital
managers and physicians in the
strategic discussions. Based on your reading of this chapter and

your own experience,
did he do the right thing? Why or why not?
spa81202_06_c06.indd 177 1/15/14 3:49 PM
Schwartz maintains that the only way people learn together is
through conversations
(Abraham, 2003). Whether formal or informal, a strategic
conversation is the learning
vehicle through which the group adjusts to a new worldview to
enable strategic plans
to be developed and implemented. The steps in the process often
follow this sequence:
shared conversations, shared learning, change in one’s mental
models, then development
of better strategic plans. Tony Manning echoes Schwartz in
endorsing the value of infor-
mal dialogue:
Strategic conversation is far more than just an occasional
practice that can
be adopted or abandoned at will: it is without doubt the central
and most
important executive tool. . . . What senior managers talk
about—clearly,
passionately, and consistently—tells me what they pay attention
to and
how sure they are of what they must do. (Manning, 2002, pp.
35–36)
The viewpoint of most strategic analyses is assumed to be that
of the CEO or leader of the

organization and may include the top-management team. When
the list of strategic issues
is examined from the viewpoint of a board of directors, other
variables could be added,
such as whether to seek partnerships with other HSOs, and even
whether it is time to
replace the CEO.
There is one final check on whether the HSO is dealing with the
proper set of strategic
issues. Because they constitute the critical questions and issues
the HSO should address,
all strategic issues should be taken into account explicitly when
forming strategic alterna-
tives. In the event that the alternatives fail to take into account
one of the strategic issues,
it could mean that either (a) the strategic alternatives have not
been properly formulated
and should be further modified to take it into account, or (b) the
issue in question is not as
important as was initially assumed and thus could be deleted.
While it is possible that an HSO could have any number of
strategic issues at a given
point, the larger the number of issues proposed, the higher the
chances are that some of
them are not as critical as others. Long lists of more than 12
items should be pruned down,
eliminating those that are not so critical or combining some of
them. The Delphi method,
described in Chapter 3, is a good tool to use for this purpose. If
the list cannot be reduced
at this stage, there will be another chance to do this after the
strategic alternatives have
been created and it is found that every issue has not been taken
into account.

The recommended form for stating a strategic issue is as a
question: for example, “Should
the organization build a second clinic?” By posing a question,
the leaders may find that
the answer is known with certainty: “Yes, the organization
should build a second clinic.”
When everyone agrees on the answer, then the issue is not a
strategic issue—it is a deci-
sion the HSO has already made. No decisions have yet been
made for strategic issues. It is
not sufficient, however, that one simply pose a question on a
matter of strategic concern.
Consider the following:
• Should the organization try to lower its costs?
• How can the organization lower its costs?
The strategic issue is not whether to lower costs; the answer is
that of course it should.
Rather, the strategic issue might be “How can the organization
lower its costs?” because
that answer may be uncertain, so it could be included as a bona
fide strategic issue.
spa81202_06_c06.indd 178 1/15/14 3:49 PM
CHAPTER 6Section 6.2 Overcoming Obstacles
1. Having done a thorough situation analysis—both external and
internal—do you agree that it
makes sense to synthesize the results? Explain your answer.

2. In your view, would the external analysis previously done be
more useful in scenario plan-
ning than in forming strategic issues? Why or why not?
3. Some people suggest that managers are not involved in the
process of coming up with stra-
tegic issues because it involves phrasing questions to which the
answers are unclear. Could
there be any truth to such a view?
4. Suggest ways of shortening a list of 20 strategic issues to a
more manageable number of
about 12.
Thus, one criterion for a strategic issue is that the answer to the
issue is uncertain. The way
in which that uncertainty is resolved is through the design of
strategic alternatives and
choosing a preferred one. Given a strategic issue, “Should the
hospital broaden its service
line?” one alternative could be, “Broaden it” and another,
“Leave it out altogether as an
alternative” (not broaden it). When deciding which alternative
is preferred, the one that is
chosen automatically “resolves” the uncertainty inherent in the
issue.
6.2 Overcoming Obstacles
An ordinary alternative is one of several means by which a goal
is attained or a problem
solved. A strategic alternative is one of several ways by which
an HSO might compete
in a marketplace, achieve its vision, or, if no vision has been
articulated, decide where
it might go and what it might achieve. Notice two things about

the definition: (a) The
designation “strategic” is necessary because alternatives are
fashioned in a competitive
environment, where the actions of competitors must be taken
into account, and (b) the
alternatives are created at the level of the whole organization
and not any one of its func-
tions or units. In addition, strategic alternatives provide choices
about marketplace strat-
egy or about configuring the organization, address issues of
central importance to the
organization, have uncertain outcomes, and require resources to
develop before action
can be taken (Lyles, 1994).
Beyond the Obvious: Types of Strategic Alternatives
Strategic alternatives are of three general types. “Obvious”
alternatives arise from cur-
rent strategies or simple extrapolations of what the organization
is currently doing. For
example, utilizing social media to connect with consumers
represents an obvious strate-
gic alternative. “Creative” alternatives take different conceptual
approaches than existing
strategies do and break away, to some extent, from the
assumptions and beliefs underly-
ing current strategies. An oncology clinic, for example, might
pursue a creative alternative
by entering the telemedicine market.
“Unthinkable” alternatives reflect a radical departure from the
organization’s historic
mindset (Lyles, 1994). For instance, in 2008 Catholic
Healthcare West (CHW) entered into

spa81202_06_c06.indd 179 1/15/14 3:49 PM
a clinical trial agreement with Advanced Cell Technology, Inc.,
a human cloning practitio-
ner that had previously promoted research involving human
embryo cells. Although the
CHW research will be on the use of adult stem cell treatment
for heart disease, the alliance
raised ethical questions because of long-held Catholic principles
respecting the rights of
the human embryo (Baggot, 2008).
As in the CHW example, an unthinkable alternative might be
appropriately labeled as such
because it violates some demonstrated, effective core value of
the organization. However,
sometimes alternatives are unthinkable simply because no one
before has bothered to
break the rules of what is appropriate
for how an HSO does business—even
when experimenting with such alter-
natives might be the right move. An
example of an alternative that some
would consider unthinkable is the
“e-ICU” operated by Steward Health
Care System. Physicians stationed
at this monitoring center in West-
wood, MA remotely observe patients
in intensive care units (ICUs) at six
different hospitals located from Fall
River to Methuen, MA. Video screens
and other technology in the “e-ICU”

allow the physician in Westwood to
see patients, interact with nurses and
other caregivers, and review patient
records. This remote set of “extra
eyes” helps the for-profit health sys-
tem keep staffing lean in its hospital
ICUs (Weisman, 2013).
Typically, such alternatives have little chance of being accepted
by management unless
arguments for their adoption are persuasive and made by
someone who commands
respect in the organization. Unthinkable alternatives illuminate
the current situation in a
radically different light and inspire other managers to propose
creative solutions. How-
ever, this typology, while insightful, is typically not advocated
as a framework to generate
alternatives.
For some organizations, making choices about their future may
involve slight tweaking
of their present strategy. This might be something as simple as
hiring another nurse prac-
titioner for the clinic or starting to advertise on radio. Although
the HSO might claim that
this represents a change in strategy, it is simply a change in
implementation. For other
HSOs, the strategy itself may remain unaltered, but the
objectives may change, such as
from 5% per year to 10% per year growth in patient volume.
Organizations may mistak-
enly characterize this as a change in strategy; however, if the
basic way in which the HSO
competes has not changed, then this is not a change in strategy.

© Metin Kiyak/iStock/Thinkstock
Because the ICU is the place in a hospital where the most
fragile and vulnerable patients are cared for, a “remote”
ICU is an unthinkable alternative for some.
spa81202_06_c06.indd 180 1/15/14 3:49 PM
What many organizations do when planning ahead, it would
appear, are merely simplis-
tic extrapolations of past accomplishments involving no change
in strategy, or they simply
take the first idea that makes sense at the time. Sometimes this
approach works or works
for a short time, but more often it does not. David C. Pate,
president and CEO of St. Luke’s
Health System based in Boise, Idaho, predicts that many “for-
profits and non-profits will
not transform themselves . . . and then these organizations will
be acquired, enter bank-
ruptcy, close, or have to play catch-up and react to a market that
has changed when they
haven’t” (Pate, 2013, para. 16). Even the best decision made at
a given time can lead to
a poor result because of unforeseen events and actions. Poor
results are notoriously the
inevitable byproduct of poor execution, even with an otherwise
sound strategy in place.
Common Obstacles
In each of the cases described, is the strategy the HSO chooses

the best one it could have
adopted in the circumstances? The only way for an HSO to be
certain is to ensure that it
analyzed the subset of all plausible alternative strategies and
made its decision for very
good, defensible reasons. If this is done, then any challenge or
question about what else
might have been done can be preempted because one can argue
convincingly why the
chosen strategy is superior or at least preferable to any other
that might be proposed. The
following sections delineate some common obstacles to creating
strategic alternatives.
Focus on Perceived Barriers
Why don’t HSOs routinely develop alternative strategies? The
most probable answer is
that they perceive obstacles, real or imagined. An excuse
commonly heard is that it takes a
lot of effort and time: “We’re in a hurry and can’t afford to
wait.” In fact, to do something
well does require time and effort, so claiming to be hurried is
just a convenient excuse.
True, circumstances sometimes demand a quick decision, but
even so, making a decision
without considering alternatives is foolhardy. Besides, to make
any decision at all, one
needs at least two alternatives.
Another reason offered for not constructing strategic
alternatives is that the exercise
doesn’t guarantee the “right” answer, so it may be a waste of
time and resources. It is
true that no one can guarantee the correctness of a decision
whose consequences play
out in the future, but by considering the significant trends and

impacts, including the
relevant variables, assessing the fit with the HSO’s capabilities
and resources, and con-
sidering plausible strategic alternatives, the chances of making
the “right” decision
for the organization are substantially enhanced. Only when 3, 5,
or even 10 years have
passed can one know whether a strategic decision was good or
not. Otherwise, one has
to make the decision while not knowing how things will actually
turn out. All one can
do in the circumstances is one’s best. HSOs that skip the
process entirely for lack of cer-
tainty do not give themselves a fighting chance to make the best
decision they can; they
shortchange themselves.
spa81202_06_c06.indd 181 1/15/14 3:49 PM
Focus on the Past
Many managers are more comfortable thinking about and
analyzing the past than the
future. They seem to find nothing wrong about examining past
data and then making
a decision that will play out in the future. The past is certain;
the future is not. In these
days of rapid, even discontinuous change, past data are often
irrelevant. What we need
to examine are trends about everything that is changing and
likely future moves of com-
petitors. How is the healthcare industry changing? What will
merging HSOs become?

How will technology affect our lives, what we buy, how we use
healthcare services, how
we do business? People are less comfortable in the future
because they are unable to pre-
dict or forecast it, unable to extrapolate, and unused to
ambiguity and uncertainty. An
oft-repeated joke is that people would rather be certainly wrong
than not sure whether
they were right. The thought that they might even influence the
outcome of future events
escapes them. Many people simply regard the future as
something beyond their control.
Complacency
There are managers who don’t take the responsibility for
strategy formulation seriously
enough or devote enough time to ask themselves really tough
questions that might put
their organizations on a stronger, albeit different course. It is
much easier to keep doing
what the HSO has been doing, particularly if the organization is
performing reasonably
well. Setbacks can be blamed on a competitor, an unexpected
new regulation, a downturn
in the economy, or a reduction in reimbursement. While the
unexpected often happens,
many “unexpected” occurrences could have been anticipated and
taken into account had
the planning process been done properly.
Insufficient Training
When people do not know how to plan strategically, they may
seek to “save face” by not
acknowledging this knowledge deficit. Instead they do what
they think is planning—as
they have always done it. In these instances, the HSO’s business

is at risk unless and until
it has management in place that is trained in formulating
strategies. While there is no
foolproof way of coming up with a good strategy, the process
relies to a large extent on
strategic thinking. Results depend in large part on one’s
strategic thinking ability and on
experience with and commitment to a systematic approach. Even
after an organization
has decided on a strategy, managers must be fully invested in
making it succeed. It will
require the HSO leaders to provide ideas, motivation,
arguments, and skill at implemen-
tation to bring about the desired results. Although it is more
convenient to stay in one’s
comfort zone, that may not be the best way to chart the
organization’s future course.
In some organizations, staff planners and even some line
managers who value the process
of strategy formulation find only lip service paid to it because
of lack of interest or com-
mitment on the part of top management. This might be the
product of a tradition or cul-
ture of risk avoidance or entrenched and threatened interest
groups raising impediments
to the process. Finally, top management’s reluctance to embrace
the process may stem
from simple ignorance about what planning really is and is
supposed to do.
spa81202_06_c06.indd 182 1/15/14 3:49 PM

Myopia
Organizations often put a far greater emphasis on short-
term results than on longer-term strategic performance.
While short-term performance is important, it should
never come at the expense of dominant considerations. In
this environment, the HSO’s long-term future and poten-
tial are often sacrificed when expenditures are slashed for
new-service development, advertising, staff development
programs, and other important strategic investments.
Clearly, such decisions are suboptimal and not made in
the long-term best interests of the organization. Such
decisions also adversely affect any strategic alternatives
the HSO may consider and the strategic direction to be
pursued.
In healthcare, financial returns may not be the primary
driver of the strategic decision-making process. This is
particularly evident in HSOs where the mission is to pro-
vide charity care, health education, and other community
services. Yet even in these organizations, it is not wise to
make financially irrational short-term strategic decisions.
The HSO must have adequate resources to carry out its
mission for the long term.
© Illustration Works/Jonathan Evans/
Motif/Corbis
Short-term financial performance
should never come at the expense
of longer-term performance.
1. Which of the obstacles to creating viable strategic
alternatives are most easily removed?

Which ones might be the most difficult to mitigate? Discuss.
2. Think of a personal decision you made for which you actually
considered at least one other
alternative. Could you have made the decision without
considering the alternative? If so,
why did you consider the alternative? Was your decision
affected by you having considered
the alternative?
3. If you follow sports, try to imagine your favorite team. As
hard as it may be for that team to
win games, the real strategic decisions are made away from the
arena and probably in the
off-season. Which players should be traded? Who would
improve the team, and could the
team acquire that person? How can the total payroll be lowered
while still fielding a win-
ning team? Describe which people in the organization
participate in such strategic decision
making and whether in your opinion they go through a
systematic process of creating and
weighing different alternatives.
spa81202_06_c06.indd 183 1/15/14 3:49 PM
CHAPTER 6Section 6.3 Crafting Strategic Alternatives
6.3 Crafting Strategic Alternatives
One typical way to formulate strategies is for a small group of
managers to brainstorm
ideas that later become alternatives. Some of these discussions
follow a specific process;
some do not. Marjorie Lyles (1994) suggests a process that

begins with framing a problem,
identifying an initial list of alternatives, extending the list if
resources and time permit,
then narrowing the list through a process of evaluation and
consolidation. However, who
is to say that the resulting list contains good rather than
mediocre or unimaginative alter-
natives? Clearly, a worthwhile strategy cannot come from
poorly conceived alternatives.
Lyles specifies certain criteria as to what makes a list of
alternatives useful:
• The variety of alternatives
• Differences among them compared to the present situation
• The costs and difficulties of implementation; if they are all
too easy to imple-
ment, the organization is not stretching itself or being ambitious
enough
• The degree to which they challenge existing goals, aspirations,
long-held
assumptions, and beliefs (Lyles, 1994)
Edward de Bono (1992) makes the distinction between choosing
from alternatives that
already exist and alternatives that do not exist and need to be
found. In the latter case,
one cannot suggest just any alternative and have that alternative
make sense. It has to
be related to a reference point. For example, what alternatives
are there to achieving the
HSO’s mission or carrying out this function?
To help in coming up with alternatives, de Bono suggests
thinking of groups, resem-

blances, similarities, or concepts. For example, as an alternative
to an orange, do you
search for other citrus fruit, domestic fruit, refreshing
beverages, or colors? His technique
of lateral thinking is directly concerned with changing concepts
and perceptions, espe-
cially when it is used to come up with alternatives in solving
problems (de Bono, 1992).
It is a systematic way of generating new ideas and new
concepts. Besides leading to a
defensible strategy, coming up with suitable strategic
alternatives is an excellent opportu-
nity to explore whether the organization should be heading in
another direction or doing
business a different way.
James Bandrowski offers one of the most powerful techniques
for using creative imagina-
tion to find alternatives or, more accurately, breakthroughs
(Bandrowski, 1990). He sug-
gests visualizing the ideal solution and then “fill[ing] in the
feasibility” afterwards, that
is, figuring out how to achieve that ideal solution (see Figure
6.1) (p. 33). The advantages
include coming up with something radical, leapfrogging the
competition instead of just
catching up, getting ready for tomorrow’s markets, and
injecting new life into a possibly
complacent and mentally tired organization.
spa81202_06_c06.indd 184 1/15/14 3:49 PM

Figure 6.1: The creative leap
Source: Adapted from Bandrowski, J. F. (1990). Corporate
imagination plus: Five steps to translating innovative strategies
into action.
New York, NY: Free Press.
When stymied by roadblocks, James Bandrowski suggests
making a “creative leap” by working back-
wards: visualizing the ideal solution first and then working on
the implementation afterward, thus
avoiding the blocks altogether.
Rather than just blindly searching for ideal solutions,
Bandrowski offers the following
suggestions for making a creative leap, all of which will
improve your ability to think
strategically and supplement the ideas discussed in Chapter 3:
• Year 2020—Pick a date in the future such as the year 2020.
Call it “Challenge
2020,” a technique employed by 3M. Unlock your imagination
and visualize
what the healthcare industry, services, markets, and so on will
be like then.
Bandrowski says, “The future will be invented by those who see
it today”
(1990, p. 33).
• Ideal HSO—What would the ideal HSO look like? Who is the
best competitor in
the health services segment of the healthcare industry? What do
you most covet
in this competitor? What organization would you most like to
acquire and why?
Bandrowski quotes Lee Iacocca’s description of an ideal

automobile company:
“It would combine German engineering, Japanese production
efficiency, and
American marketing” (1990, p. 34).
Solve
problem
backwards
Leap over
blocks
Current
Situation
Ideal
Solution
Improved
Situation
Strategic Blocks
Problem

Problem
spa81202_06_c06.indd 185 1/15/14 3:49 PM
• Ideal industry—Reconceptualize the entire health services
segment. How could it
become more profitable? How could technology revitalize it?
Would it make
sense for it to merge with another segment of the healthcare
industry?
• Sweeping solution—Start with
a blank canvas and try to
find a total solution rather
than trying to improve
various components such as
service delivery, customer
service, marketing, and com-
munity outreach. Is there
a completely different way
of doing business that is

better?
• Perfect service—What ideal
healthcare-related services
could be provided to either
existing or new consumers,
assuming no fiscal or techni-
cal constraints? Consumers
and stakeholders such as
payers should be included
in this fantasy exploration.
How might consumers
and other stakeholders be
persuaded to help cocreate
value? One place to start
might be to list or collect
data about all the shortcomings of existing services.
• Ideal information—What information must you have to
succeed? What don’t
you know that is hampering your efforts or causing you to be
uncompetitive?
Include information also about trends and the future. Rank the
list in terms of
importance to the organization, not in terms of what is possible

or what costs
the least.
• Ideal system—Focus on new ways of increasing throughput,
reducing costs,
reducing cycle time, or bringing new services to market faster.
This is an area
in which Lean and Six-Sigma improvement techniques
traditionally occur.
But what do you do for an encore after your improvement
initiatives have
taken place?
In 2006, Shih et al. identified six attributes of an ideal
healthcare delivery system. These
attributes, listed in Table 6.1, are useful starting points for
discussing strategic alternatives
to achieving these ideals in your HSO’s community.
© Ann Summa/Comet/Corbis
One aspect of an ideal healthcare delivery system are
providers who are culturally competent and perhaps even
bilingual, with the ability to communicate to a patient in
his or her own language.

spa81202_06_c06.indd 186 1/15/14 3:49 PM
Table 6.1: Six attributes of an ideal healthcare delivery system
Information continuity Patients’ clinically relevant information
is available to all
providers at the point of care and to patients through electronic
health record systems.
Care coordination and transitions Patient care is coordinated
among multiple providers, and
transitions across care settings are actively managed.
System accountability There is clear accountability for the total
care of patients.
Peer review and teamwork for
high-value care
Providers (including nurses and other members of care teams)

both within and across settings have accountability to each
other,
review each other’s work, and collaborate to reliably deliver
high-
quality, high-value care.
Continuous innovation The system is continuously innovating
and learning in order
to improve the quality, value, and patients’ experiences of
healthcare delivery.
Easy access to appropriate care Patients have easy access to
appropriate care and information at
all hours, there are multiple points of entry to the system, and
providers are culturally competent and responsive to patients’
needs.
Source: Shih, A., Davis, K., Schoenbaum, S., Gauthier, A.,
Nuzum, R., & McCarthy, D. (2008, August). Organizing the
U.S. health care
delivery system for high performance. Washington, DC: The
Commonwealth Fund. pp. ix–x.
HSOs that have been operating in a certain way for years and
experiencing satisfactory

results are not inclined to change their way of doing business
because there is no perceived
need to do so. One overlooked reason for complacency is that it
is almost impossible even
to think about doing business in a different way or heading in a
different direction when
you are an intrinsic part of the organization and have become
used to doing things the
way you do. In fact, this is an ideal, if somewhat
counterintuitive, time to explore other
options. Many HSOs fall into the mindset of “If it ain’t broke,
don’t fix it,” and they are
difficult to persuade otherwise. They address the issue only
when their strategy falters,
or when competitors overtake them, or some other threat looms,
by which time it is often
too late. Opportunities go unrecognized because they are seldom
sought or considered.
This is another reason to be doing strategic thinking all the
time. In cases like this, the
organization may well benefit from an outside facilitator and
specific exercises to stimu-
late creativity.
In Case Study: Hospital Explores Accountable Care Strategic

Alternatives, you will learn how
an external consultant might have assisted a hospital in
identifying strategic alternatives
related to a key strategic issue: How can our hospital transition
to an accountable care
model of healthcare delivery?
spa81202_06_c06.indd 187 1/15/14 3:50 PM
Case Study: Hospital Explores Accountable Care Strategic
Alternatives
Memorial Hospital, a medium-sized nonprofit hospital in the
Midwest, engaged a healthcare
management consultant to assist the leadership team in
identifying strategic alternatives for par-
ticipating in the Medicare “shared savings” program for
accountable care organizations (ACOs).
Accountable care refers to a model of healthcare delivery in
which the provider accepts responsi-
bility for the cost and quality of care delivered to a specific

population of patients. To be eligible for
the program, the hospital had to meet specific criteria, such as
establishing structured governance,
creating a fully integrated healthcare system, and enrolling at
least 5,000 Medicare beneficiaries.
The consultant provided hospital leaders with further education
on the requirements of the pro-
gram, including the importance of collaboration with primary
care physicians. Once hospital lead-
ers better understood the program criteria, it became apparent
that several key strategic issues had
to be considered—with alternatives created for each issue. To
assist in identifying strategic alter-
natives, the consultant provided top management a list of
questions that needed to be answered,
including the following:
• How can we recruit primary care physicians?
• How can we expand operational capacity for coordinating
patient care?
• What information systems are needed to effectively
coordinate care?
• What will be the hospital’s role in the accountable care
model?

• What will be the role of specialist providers in the
accountable care model?
• How can we ensure quality care with limited resources,
reduced reimbursement, and
increased patient volume?
• How can we engage community services and public health in
the accountable care model?
• What can be done to help patients be more actively engaged
healthcare consumers?
• What can be done to reduce waste and streamline care
delivery?
• What payers do we want to approach, or is an in-house
provider-owner health plan
better for us?
• What internal capabilities are needed to implement an ACO
strategy in our local market?
Using a Delphi technique, a number of strategic alternatives
were identified. The consultant
assisted top management in choosing the most viable options for
the hospital.

1. De Bono suggested that alternatives to an orange might be
other citrus fruit, domestic fruit,
refreshing beverages, or colors. How would you apply this kind
of lateral thinking to the
problem of how healthcare consumers select providers? What
unusual alternatives might
this suggest for an HSO?
2. Which of Bandrowski’s suggestions for brainstorming
strategic alternatives appeals to you most
and why? Which ones would you as a student find most difficult
to do? Give your reasons.
3. For each attribute of an ideal healthcare system, use
Bandrowski’s suggestions for brain-
storming to identify strategic alternatives a hospital might use
for achieving this ideal
attribute.
(continued)
spa81202_06_c06.indd 188 1/15/14 3:50 PM

Strategic Intent
Most well-managed HSOs try to achieve an overall mission and
vision. The strategies
it chooses have to be aligned with this mission and vision. So
what is strategic intent?
Strategic intent is the market position and market share that the
HSO sets as its goals.
Strategic intent focuses on a shorter time horizon than
“mission” or “vision” and for that
reason is viewed as more tangible and achievable (Hamel &
Prahalad, 1989). The strategic
intent of St. Luke’s Health System is accountable
care. According to president and CEO David C.
Pate, “accountable care is the Triple Aim of better
health, better care, and lower costs” (Pate, 2012,
para. 6). This strategic intent describes what is
expected to occur as a result of St. Luke’s vision,
which is to deliver integrated, seamless, and
patient-centered quality care across all St. Luke’s
settings by aligning with physicians and other

providers.
The CEO of Cleveland Clinic, Dr. Toby Cosgrove,
has made it clear the strategic intent of his orga-
nization is to continue to grow (Magaw, 2013a).
This will require organizational stretch of cur-
rent resources and capabilities to accommodate
plans for mergers, acquisitions, and partnerships.
Cleveland Clinic, a nonprofit HSO, recently
announced a strategic alliance with Community
Health Systems, Inc., a large publicly traded for-
profit HSO with 135 hospitals across the United
States (Magaw, 2013b).
Strategic intent serves as a milestone on the way to realizing
vision and fulfilling mission.
At one time, Cleveland Clinic’s strategic intent was to be high
on the U.S. News & World
Report’s listing of top hospitals. Now continued growth, along
with sustaining top hospi-
tal designation, is the milestone.
Strategic intent also influences choices an HSO will make
among various strategic alterna-
tives. For instance, since its founding in 2006, ZoomCare, a

privately held Portland, Ore-
gon-based chain of healthcare clinics, has had the strategic
intent of offering fair, one-price,
© Images.com/Steve Dininno/Corbis
Accountable care can be thought of as the
triple aim of better health, better care, and
lower costs.
Discussion Questions (continued)
4. Could De Bono’s lateral thinking be used to identify a
hospital’s strategic alternatives in
question 3 that might not be identified using Bandrowski’s
suggestions? Give your reasons.
5. HSOs are often stymied in pursuing different options—even
what they feel they need to do—
because of some perceived insurmountable obstacle (“just can’t
be done”). Do you believe
that trying to focus on a desirable end-state (taking a “creative
leap”) and working backward
would help managers? If so, what would be most difficult about
persuading them to do this?

spa81202_06_c06.indd 189 1/15/14 3:50 PM
affordable services while meeting its “mission of providing
healthcare on demand 362
days per year in state-of-the-art neighborhood clinics”
(ZoomCare, 2012, para. 2). In sup-
port of this strategic intent, ZoomCare has chosen not to
provide services to Medicare
patients, because the Medicare payment is lower than
ZoomCare’s real costs and federal
regulations require HSOs to accept the Medicare price as
payment in full. In addition, reg-
ulations deny Medicare patients the option of paying for
medical services out of pocket.
In keeping with its fair, one-price strategic intent, ZoomCare
does not provide services to
Medicare beneficiaries (ZoomCare, 2012).
Strategic Categories

For some HSOs, the strategic intent is simply to stay open and
the primary strategic ques-
tion is: How can we maintain a reasonable profit? For a small
HSO such as a physician
clinic, there may be only three or four strategic alternatives to
consider when addressing
this question. As the strategic intent becomes more complex and
the number of strate-
gic questions and alternatives grows, it is helpful to group
strategies into like categories.
Three simple categories—healthcare services, operations, and
human resources—may be
sufficient (Spath, 2005).
Some HSOs use the Five Pillars in the Studer Model as a
grouping for strategic alterna-
tives: Service, People, Quality, Finance, and Growth (Studer,
2004). There is a variety of
frameworks to help HSOs understand and arrange strategic
alternatives. The most appro-
priate categories depend on your specific situation. How
categories are used in consider-
ing strategic alternatives at a health system in the northwestern
United States is described
in Case Study: St. Luke’s Health System.

Case Study: St. Luke’s Health System
Borrowed and adapted from the work of Quint Studer,
the strategic alternatives at St. Luke’s Health System,
based in Boise, Idaho, are categorized into five pillars
of excellence: Services, Quality, People, Relationships,
and Stewardship. During the planning process, the
strategic goal in each category is clearly defined:
• Service: Provide a superior and coordi-
nated patient-centered healthcare experi-
ence in all settings.
• Quality: Provide a reliable and safe patient/
family-centered experience in all settings.
• People: Improve St. Luke’s image as a
place to work and the preferred practice
location for physicians.
• Relationships: Ensure engagement of our
physicians and providers.
• Stewardship: Optimize and demonstrate the value of St.

Luke’s to the community we
serve. (St. Luke’s Treasure Valley, 2010, p. 1)
Strategic alternatives—how we can achieve the strategies in
each category—are suggested, consid-
ered, debated, and selected for action. Details about this
decision process are found in Chapter 7.
© Getty Images/Hemera Technologies/
AbleStock.com/Thinkstock
Providing a patient- or family-centered
experience is a strategic goal for some HSOs.
Large hospital birthing rooms such as this one
accommodate friends and family members
who can provide support to a woman while
she gives birth.
spa81202_06_c06.indd 190 1/15/14 3:50 PM

1. Does trying to achieve a strategic intent complicate what an
HSO is trying to do or does it
help? Isn’t trying to achieve a vision, strategy, and objectives
enough? Explain your answer.
2. Do you think that knowledge of the organization’s strategic
intent affects the decision as to
which strategic alternative to choose as “best”? Explain your
answer.
3. Discuss developing a strategic intent for a U.S. health system
that owns or operates facilities
outside of the United States.
4. When one or two HSOs gain market share over time, must
other HSOs lose market share? Is
it a zero-sum game?
5. What is the difference between a strategic alternative and
another type of alternative
(e.g., considering social media for advertising, picking another
billing software)?
6. Imagine a community health center wants to raise funds for

cancer prevention research.
What strategic alternatives might such an organization identify?
7. With respect to question 6, is it possible to come up with
strategic alternatives without first
knowing what key strategic issues are faced by the health
center? Why or why not?
8. All key strategic issues should be addressed by the
alternatives identified by the organiza-
tion. Do you think this criterion step is really necessary?
Explain your answer.
9. What would be the problem if some key strategic issues were
overlooked? Explain.
10. Discuss one benefit that checking back with the list of
strategic issues might have on your
final list of strategic alternatives.
A common pitfall is deciding on the best strategy before coming
up with alternatives.
Many HSOs are guilty of doing this when they decide on the
strategy that they will pursue
without contemplating or contrasting it with other alternatives.

Without generating and
considering good alternatives, the organization has no way of
knowing whether the strat-
egy it will pursue is the best under the circumstances. It’s a
creative and time-consuming
process, but it is ultimately rewarding.
One last check needs to be performed before beginning to
analyze the strategic alterna-
tives and argue for a preferred one, and that is to compare the
alternative with the list
of strategic issues. Every strategic issue should have been
addressed in some way by an
alternative. If an issue remains unaddressed, this means that
either (a) these issues are not
as important as we first thought and can be deleted from the list
or (b) they are important
and the strategic alternatives need further work to take them
into account. Either solution
is acceptable—there is no right or wrong answer.
spa81202_06_c06.indd 191 1/15/14 3:50 PM

Summary & Resources
Chapter Summary
• Developing a list of key strategic issues is a fundamental step
in creating viable
strategic alternatives for the organization. Such strategic issues
synthesize what
really matters to the HSO—what keeps the CEO up at night and
on a “front
burner” the rest of the time—and derive from a comprehensive
external and
internal analysis of the organization.
• Leadership and top management must be willing to talk
informally about what
is really important to the organization and what external
changes it should take
into account; these are called strategic conversations. Strategic
conversations are
where one influential thinker says the real strategic formulation
takes place.

• A key strategic issue should be phrased as a question whose
answer is not known.
If the answer is already known, then it is something the HSO
would do anyway
no matter what alternatives might be suggested.
• Before choosing the best strategic alternative, the HSO must
first go through a
process of convincing itself that the choice is the best one,
which can be done only
by comparing it to other equally good alternatives. When there
are many strate-
gic issues and possible alternatives, grouping them into like
categories can make
it easier to evaluate the choices.
• Unfortunately, organizations may find excuses not to go to
the trouble of creat-
ing good strategic alternatives. Excuses include being in a hurry
and it taking too
long, it not guaranteeing the “right” answer (so why bother?),
being more com-
fortable thinking about and analyzing the past, not wanting to
ask really tough
questions (so let’s keep doing the same thing), not knowing how

to form viable
alternatives and not admitting it to save face, lack of interest or
commitment on
the part of top management, and paying more attention to short-
term financial
results instead of long-term strategic performance.
Web Resources
http://www.entrepreneurialmd.com
This website describes strategic business alternatives for
physician entrepreneurs with a
blog and articles about successful physician-owned businesses.
http://innovation.cms.gov
The Innovation Center sponsored by the Centers for Medicare
and Medicaid Services
describes various innovative payment and service delivery
models under evaluation for
the purpose of reducing program expenditures while preserving
or enhancing the quality
of care.
http://innovations.ahrq.gov
The Health Care Innovations Exchange sponsored by the
Agency for Healthcare Research

and Quality offers a variety of strategic alternatives for new and
better ways of delivering
healthcare.
spa81202_06_c06.indd 192 1/15/14 3:50 PM
http://www.entrepreneurialmd.com
http://innovation.cms.gov
http://innovations.ahrq.gov
http://www.mindtools.com
This website has a variety of practical and fun tools that
organizations and individuals can
use to brainstorm strategic alternatives.
http://www.rtmteam.net
The Results That Matter Team has strategic and health planning
resources for public
health entities as well as government and nonprofit
organizations.
Key Terms

accountable care A model of healthcare
delivery in which provider groups accept
responsibility for the cost and quality of
care delivered to a specific population of
patients.
HERs process Strategic conversations that
take place informally in hallways, eleva-
tors, and restrooms.
strategic conversation A free-ranging
discussion on a topic of strategic interest
to an organization. Because of its char-
acteristic “no-holds-barred” freedom to
say whatever needs to be said, it invari-
ably produces ideas and thinking that are
ultimately useful in the strategic planning
process and that might not be captured in
any formal process.
strategic intent What an organization
intends to do with respect to market posi-
tion or market share.
strategic issues The critical questions and

issues the organization must address in its
strategic plan and that are a distillation or
synthesis of the entire situation analysis.
spa81202_06_c06.indd 193 1/15/14 3:50 PM
http://www.mindtools.com
http://www.rtmteam.net
spa81202_06_c06.indd 194 1/15/14 3:50 PM
Required Resources
Required Text
Read from the course text, Strategic management in healthcare
organizations:
· Chapter 6: Creating Strategic Alternatives
· Chapter 7: Choosing the Best Strategy
· Chapter 9: Executing the Strategy
Articles
1. Bisognano, M. (2008). Leadership's role in execution.
Healthcare Executive, 23(2), 66-66,68,70. Retrieved from the

ProQuest database.
2. Delgado, R. I. (2009). Financial performance drivers and
strategic control: The case of cancer treatment centers. The
University of Texas School of Public Health. ProQuest
Dissertations and Theses,147-n/a. Retrieved from the ProQuest
database.
3. Krentz, S. E., DeBoer, A. M., & Preble, S. N. (2006). Staying
on course with strategic metrics. Healthcare Financial
Management, 60(5), 86-93. Retrieved from the ProQuest
database.
Recommended Resource
Article
New York Times. (2013, March 20). The face of future health
care (Links to an external site.)Links to an external site..
Retrieved from
http://www.nytimes.com/2013/03/21/business/kaiser-
permanente-is-seen-as-face-of-future-health-
care.html?pagewanted=all&_r=0.
Required Resources

Required Text
Read
from the course text,
Strategic management in healthcare organizations
:
o
Chapter 6: Creating Strategic Alternatives
o
Chapter 7: Choosing the Best Strategy
o
Chapter 9: Executing the Strategy
Articles

1.
Bisognano, M. (2008). Leadership's role in execution.
Healthcare Exec
utive, 23
(2), 66
-
66,68,70. Retrieved from the ProQuest database.
2.
Delgado, R. I. (2009). Financial performance drivers and
strategic control: The case of
cancer treatment centers. The University of Texas School of
Public Health.
ProQuest
Dissertations and T
heses
,147
-
n/a.
Retrieved from the ProQuest database.

3.
Krentz, S. E., DeBoer, A. M., & Preble, S. N. (2006). Staying
on course with strategic
metrics.
Healthcare Financial Management, 60
(5), 86
-
93. Retrieved from the ProQuest
database.
Article
New York Times. (2013, March 20).
The face of future heal
th care
(Links to an external
site.)Links to an external site.

. Retrieved from
http://www.nytimes.com/2013/03/21/business/kaiser
-
permanente
-
is
-
seen
-
as
-
face
-
of
-
future
-
health
-
care.html?pagewanted=all&_r=0.
Required Resources

Required Text
Read from the course text, Strategic management in healthcare
organizations:
o Chapter 6: Creating Strategic Alternatives
o Chapter 7: Choosing the Best Strategy
o Chapter 9: Executing the Strategy
Articles
1. Bisognano, M. (2008). Leadership's role in execution.
Healthcare Executive, 23(2), 66-
66,68,70. Retrieved from the ProQuest database.
2. Delgado, R. I. (2009). Financial performance drivers and
strategic control: The case of
cancer treatment centers. The University of Texas School of
Public Health. ProQuest
Dissertations and Theses,147-n/a. Retrieved from the ProQuest
database.
3. Krentz, S. E., DeBoer, A. M., & Preble, S. N. (2006). Staying
on course with strategic
metrics. Healthcare Financial Management, 60(5), 86-93.
Retrieved from the ProQuest
database.

Article
New York Times. (2013, March 20). The face of future health
care (Links to an external
site.)Links to an external site.. Retrieved from
http://www.nytimes.com/2013/03/21/business/kaiser-
permanente-is-seen-as-face-of-future-
health-care.html?pagewanted=all&_r=0.

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