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Chapter Objectives
After reading this chapter, you should be able to

Identify the four primary functions of strategic planning.

Summarize how mission and vision statements are developed.

Outline the strategic planning phase of analysis and diagnosis in health care administration.

Identify the primary goals and corporate strategies available to health care organizations.

Describe the strategic planning process of implementing a strategy.

Chapter 1 described how directing health care organizations requires application of the five basic managerial functions: planning, organizing, staffing, directing, and
controlling. This chapter delves more deeply into the strategic planning function. As the first step in the management process, effective planning is a key element of
organizational success in health care.

Strategic Planning 3

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Top-level management can help identify, coordinate, and
implement an organization’s overall strategy, which can include a
direction for the services that the organization provides.

3.1 Overview of Strategic Planning

Strategic planning is the development of a plan that integrates all organizational activities into a
coherent course of action. The many types of organizations that deliver health care vary in the exact
natures of their management structures, but they all tend to pursue many similar activities. Top-level
executives are responsible for the oversight of the entire organization. In profit-seeking organizations,
the CEO has the primary responsibility of caring for the interests of stockholders and other investors,
balancing profit goals with other strategic corporate objectives. CEOs in nonprofit organizations tend to
issues such as financing; however, their primary objective is to sustain organizational services and
operations, rather than seeking profits as the final outcome. In smaller organizations, the top-level
executive might carry the title of president or chief administrator rather than CEO.

Strategic management is a top-level management function, overseeing both the short- and long-term
organizational objectives and outcomes. This function integrates and coordinates all company
activities. Strategic management helps executives steer and manage a company to achieve success over
time—not just for the next quarter or year, but for the long term. It includes providing direction for the
organization, detailing the goods and services the organization will provide, and determining how the
organization will respond to competitors within the industry. It requires an understanding of the
organization’s publics and what they want (Ginter, Duncan, & Swayne, 2018). Top executives are
charged with four major tasks:

1. Develop the organization’s mission and vision statements.
2. Analyze and diagnose organizational strengths and weaknesses.
3. Decide upon an overall organizational strategy.
4. Oversee the implementation of the organizational strategy at the tactical and operational levels.

To complete these assignments, top managers continually assess and reassess elements of the organization’s operations and the external environment. Let’s look at each of these
four functions and how they apply to health care administration. At the end of the chapter, use your understanding of these four tasks and their applications to evaluate Case:
Proactive Prevention.

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3.2 Developing Mission and Vision Statements

Seeking a common purpose or goal is part of what defines the nature of an organization. The ultimate objective of any organization constitutes its mission. A mission statement
expresses the primary reasons for the formation and operation of an organization. Mission statements can evolve over time, but it is important to remember that mission
statements focus on the present, whereas vision statements (which we will discuss later) focus on the future of organizations. In essence, a mission statement should answer the
question, “Why does this organization exist?” Beyond any simple answer such as “to make money,” the mission statement defines the essence of the organization and its purpose
(Ward, 2018).

Mission statements normally incorporate a series of elements that includes identification of an organization’s markets. A mission statement might include statements about the
organization’s overriding philosophy or its concern to maintain a certain type of image, including a notion of a self-concept. In some industries, mission statements identify the
products and services to be delivered and the type of technology used to deliver them. According to David, David, and David (2014), mission statements should include nine
elements: an organization’s customers; products/services; market; technology; concern for survival, growth, and profitability; philosophy; self-concept; concern for public
image; and concern for employees. Ward (2018) stated that “mission statements broadly describe an organization’s present capabilities, customer focus, activities, and business
makeup.” Several of the elements discussed here can be seen in the mission statements of health care organizations displayed in Table 3.1.

Table 3.1: Mission statements

Organization Mission statement

AmerisourceBergen
To build shareholder value by delivering pharmaceutical and healthcare products, services and solutions in innovative
and cost effective ways. We will realize this mission by setting the highest standards in service, reliability, safety and
cost containment in our industry.

Becton, Dickinson and Company To help all people live healthy lives.

Bristol-Myers Squibb To discover, develop, and deliver innovative medicines that help patients prevail over serious diseases

Cancer Treatment Centers of America
CTCA is the home of integrative and compassionate cancer care. We never stop searching for and providing powerful
and innovative therapies to heal the whole person, improve quality of life and restore hope.

Coventry Health Care

Our mission is to provide high-quality care and services to our members and to be profitable in the process. Coventry
Health Care is also committed to maintaining excellence, respect, and integrity in all aspects of our operations and our
professional and business conduct. We strive to reflect the highest ethical standards in our relationships with members,
providers, and shareholders.

CVS Corporation We will be the easiest pharmacy retailer for customers to use.

Hospital Corporation of America (HCA)

Above all else, we are committed to the care and improvement of human life. In recognition of this commitment, we
strive to deliver high quality, cost effective healthcare in the communities we serve. In pursuit of our mission, we believe
the following value statements are essential and timeless. We recognize and affirm the unique and intrinsic worth of each
individual. We treat all those we serve with compassion and kindness. We act with absolute honesty, integrity and
fairness in the way we conduct our business and the way we live our lives. We trust our colleagues as valuable members
of our healthcare team and pledge to treat one another with loyalty, respect and dignity.

Kindred Healthcare

The Compliance and Quality Committee is appointed to assist the Board of Directors in monitoring (1) the Company’s
compliance with applicable laws, regulations, and policies; (2) the Company’s compliance with its Corporate Integrity
Agreement and its Code of Conduct; and (3) the Company’s programs, policies and procedures that support and enhance
the quality of care provided by the Company.

McKesson Corp.
Our mission is to provide comprehensive pharmacy solutions that improve productivity, profitability and result in
superior patient care and satisfaction.

National Association of Long Term Hospitals
The National Association of Long Term Hospitals (NALTH) leads the industry in advancing the health, well-being and
understanding of patients who require a prolonged hospital stay and specialized programs of care to achieve medical
stability and maximum function.

Adapted from “Fortune 500 Mission Statements,” n.d. (https://www.missionstatements.com/fortune_500_mission_statements.html).

Accompanying a mission statement will be an organization’s vision statement, which outlines the organization’s intended future. The vision statement offers direction about
where the organization seeks to go and what executives hope the organization will become and achieve (Kantabutra & Avery, 2010). Many times, such statements exclude a
financial component, because such words might not appeal to all internal and external publics. In the new millennium, many strategic vision statements have incorporated
concepts regarding globalization and the use of Internet technology to build toward the future. A health care organization’s website is one of the first places customers may
encounter its mission. Consider the example in Web Field Trip 3.1.

Vision and mission statements provide the basis from which all strategic, tactical, and operational planning begins. Effective top-level executives routinely examine and revise
such statements as needed. Hospital administrators are advised to view these statements in light of the services the organization intends to provide to both the local community
and the larger medical profession. In addition, it is important they are not confused with each other. For example, the mission and vision statements for the highly regarded
Barnes-Jewish Hospital (https://www.barnesjewish.org/) in St. Louis, Missouri, are as follows:

Mission
We take exceptional care of people.

By providing world-class healthcare
By delivering care in a compassionate, respectful, and responsive way
By advancing medical knowledge and continuously improving our practices
By educating current and future generations of healthcare professionals

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Vision
Barnes-Jewish Hospital, along with our partner, Washington University School of Medicine, will be national leaders in medicine and the patient experience. (Barnes
Jewish Hospital, n.d.)

Sometimes mission and vision statements are the implicit guiding force of an organization, but sometimes they are used explicitly to reinforce employee behavior as well as to
guide day-to-day operations. A Florida hospital system’s CEO, for example, required that all employee badges have the mission and vision statement showing. In addition,
employees were required to memorize both statements, and the CEO often stopped people in the hall to ask them what these systems were. His reasoning for doing this was to
ensure that all employees followed the mission and vision of the organization in their everyday duties. Mission and vision statements might begin as follows:

The mission of ABC Hospital is to . . .
The vision of ABC Hospital is to . . .

Web Field Trip 3.1

A health organization’s website typically includes a page devoted exclusively to explaining its mission, vision, and values. The images and messaging throughout the
entire website are also used to reflect this information. As an example, visit the Seattle Children’s Hospital website (https://www.seattlechildrens.org/) .

Under the “About Us” tab at the bottom of the home page, select “About Seattle Children’s.” On the right side of the screen under “Also in This Section,” click on “Our
Mission, Vision and Val-ues.” After reading the mission statement, revisit the hospital’s home page.

What are the main points of the Seattle Children’s Hospital mission statement?
How does the hospital employ its home page to portray the ways in which it is achieving its mission?

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3.3 Analysis and Diagnosis of Organizational Strengths and Weaknesses

Analysis and diagnosis are critical parts of the strategic planning process. During this stage, top management often assesses internal and external factors that can influence the
direction of the organization and how it achieves its mission. Two common methods of analyzing and diagnosing an organization’s relative strengths and weaknesses are through
SWOT and the Five Forces Model.

The SWOT Model

The SWOT model, which was briefly introduced in Chapter 1, offers one common method of investigating internal company operations and the external environment.
Examination of internal operations yields understanding of the organization’s strengths and weaknesses (the SW in SWOT). Analysis and diagnosis of the external environment
reveals opportunities and threats (the OT) (see Table 1.4).

Analysis and diagnosis of the organization’s strengths and weaknesses require managers to take a step back to avoid “turf wars” between various branches and departments, and
other forms of political activities that would disrupt the objective evaluation of operations. Table 3.2 provides areas that managers should consider when carrying out the SW
part of analysis and diagnosis.

Table 3.2: Internal assessment of strengths and weaknesses

Department Factors to consider

Production
Quality of medical care
Efficient delivery of services
Follow-up after patients leave

Marketing Advertising programs

Community relations
Public relations activities
Community support
Outreach and screening programs

Finance
Ability to acquire equipment
Ability to upgrade facilities

Accounting
On-time and accurate billing practices
On-time and accurate payment methods

Human resources
Relationships with physicians
Satisfaction indicators of internal staff (e.g., rates of absenteeism, tardiness, turnover, accidents,
grievances, vandalism)

Research and development

Methods of diagnosis
Treatment programs
Medicines
Surgical instruments

Chapter 1 also outlined an analysis of semi-controllable and noncontrollable forces in the external environment. Semi-controllable forces affecting health care include patients or
customers, suppliers, the local community, financial institutions, unions, and stockholders or partners. Noncontrollable forces are the political, social, economic, technological,
and competitive factors that health care managers study and create responses to. The combination of these factors results in the potential combinations displayed in Table 3.3.

Table 3.3: Outcomes of a SWOT analysis

Internal company

Strengths Weaknesses

External environment
Opportunities Pursue with a strategy

Consider investing resources in order to
pursue with a strategy

Threats Monitor for change Create a strong strategic response

Based on information from Perspectives on Experience, by Boston Consulting Group, 1970.

As shown in the table, when the external environment offers an opportunity in an area in which the organization is strong, it makes sense to consider developing strategies to
take advantage of the situation. Should the environment present an opportunity in which the hospital or health care provider has weaknesses, managers may consider investing
funds to create a stronger internal operation and then pursue a strategy related to the opportunity.

For example, if the population of a small suburban community were to suddenly and dramatically increase (an opportunity), and the local hospital has an effective top
management team, then the organization’s leaders might consider a diversification strategy. This strategy might involve adding new specialties, such as a heart center, birthing
center, or cancer center, in order to increase revenues and grow the size of the organization. It could also include partnering with a larger health care system to gain more
financial options and be more flexible in adapting to changes in systems and requirements. In the same setting, if the hospital were to experience difficulties in attracting
physicians to work for the organization or to seek privileges in that facility, the management team might consider finding ways to improve recruiting programs in order to
strengthen the internal organization, or form a relationship with a medical school or university to provide teaching opportunities for students. Such strategies could then allow
the hospital to grow to accommodate the needs of an increasing population.

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When the environment presents a threat in an area of company strength, the top-level management team will often continue to assess the situation before taking any major
strategic action. If, however, the threat is powerful in an area of organizational weakness, a strategic response would be required; without such a response, the organization might
not survive. For example, a turbulent financial environment characterized by rising unemployment and high interest rates on debt could strongly threaten a health care facility
facing cash flow and liquidity problems. In that circumstance, a response such as a merger with a more financially sound organization may be the only way to continue
operations (Robbins & Coulter, 2012, p. 228).

A Closer Look: SWOT Analysis

This video considers how and why an organization might apply a SWOT analysis.

Critical Thinking Questions

What two factors of SWOT are internal, and what two factors of SWOT are external?
What is the importance of a SWOT analysis?

The Five Forces Framework

In addition to a SWOT analysis, managers in health care settings may also use the Five Forces Framework. The approach, as developed by Michael Porter (1980), outlines
industry-specific factors that influence the management of an organization—in this case, a health care operation. The five factors are

the threat of new entrants,
barriers to entry,
the degree of substitution possible,
supplier power, and
buyer power.

These five factors combine to indicate the level of industry intensity, or rivalry, which summarizes the degree of competition for customers (in this instance, patients and
“market share”). Industry intensity poses the greatest potential threat to an organization. The stronger the level of rivalry, the lower revenues and potential profits become.

New entrants create rivalries because they can reduce the market share held by established organizations, which in turn increases price competition (lowering charges for
medical services so that patients won’t leave). At the level of an individual physician’s practice, new entrants, or new phyicians offering the same services, constitute the primary
threat. As organizations increase in size, such as large community hospitals, the potential for new entrants lessens. Barriers to entry, or the influences that prevent new
competitors from entering a market, occur at this level due to the barriers displayed in Table 3.4.

Table 3.4: Barriers for new entrants

Barrier Description

Economies of scale
The existing hospital delivers the same service to a large number of patients, which means fixed costs can be allocated to
a large number of people.

SWOT
Analysis
From Title:

The Business Plan (https://go.openathens.net/redirector/ashford.edu?

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An organization that patents a new pharmaceutical drug will have
maximum supplier power because it is the only provider.

Government restrictions Local and state boards may limit the number of licenses to practice in a geographic area.

Brand power Patients in the area become loyal to a given facility.

Exclusive or long-term agreements These are existing contracts among physicians, other organizations, and suppliers.

Threat of retaliation Existing health care facilities may take action to challenge new entrants.

The degree of substitution present either allows or restricts patients from seeking the same or a similar service from another organization. For example, if a community has
numerous physical rehabilitation providers, patients enjoy additional choices in selecting the facility to attend. The presence of substitutes drives down prices and increases
competitive rivalry. Conversely, higher switching costs (the amount a person pays to change providers, in terms of time, money, and effort to transfer medical records) lower
competitive rivalries.

Supplier power results from an organization’s exclusivity in providing a product or service. When a
pharmaceutical company develops and patents a superior medicine that no other company provides,
supplier power reaches a maximum; this company is the only available supplier. When a company is
the only supplier, it could affect costs; for example, the cost of such essential medicines as an EpiPen
might increase. The same holds true for any manufacturer of advanced medical equipment. Logically,
suppliers seek to keep prices higher, which can reduce competitive rivalries among providers offering
the item.

Buyer power arises when consumers (patients) experience alternative choices. An individual who
believes a choice exists between chiropractic care and other forms of medical service providers enjoys
buyer power. When groups of consumers hold the same power, competitive rivalries increase, and
amounts charged for services tend to become lower.

In addition, nonmarket structural characteristics affect competitive rivalries. These characteristics
include levels of fixed costs, the presence of excess capacity, product similarity or differentiation, and
the nature of the sales process (Luke, Walston, & Plummer, 2004). Excess capacity drives down the
prices that organizations can charge, thereby increasing competitive rivalries. The same takes place
when products are similar—prices become reduced as rivalries rise. Certain sales procedures also
intensify competition.

At the completion of a SWOT analysis or a competitive analysis featuring the five main forces, health care executives should have a solid understanding of the organization’s
current position with regard to internal activities, the industry, and the organization’s external environment. At that point, it should be possible to select potential strategies to
consider.

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3.4 Strategic Direction

Top-level managers are responsible for the overall strategic direction of the organization. They develop strategic direction through analysis and diagnosis as well as an
understanding of the organization’s strategic goals, which are likely to be varied, complex, and often interconnected.

Strategic Goals

In Chapter 1, a set of strategic goals for health care was introduced using the framework provided by Drucker (1972). Outcomes of these goals are listed in Table 3.5.

Table 3.5: Health care strategic goals and intended outcomes

Strategic goals Intended outcomes

Market share Acquiring patients for a physician or hospital in a community

Innovation New or improved medical services that enhance patient care

Productivity An ample number of patients served per physician, nurse, or department
An increased number of patients who can be seen daily
An adequate number of procedures needed to meet financial goals

Physical and financial resources Adequate funds for the most modern, advanced equipment

Profitability Profits in profit-seeking organization
Enough funds for nonprofits to continue operating effectively

Manager performance and development Continuing to improve staff management
Continuously sharing and exemplifying the mission/vision of the organization
Leading with integrity and passion for internal and external stakeholders

Employee performance and attitudes Employee satisfaction with the organization, occupation, pay, benefits, and coworkers
Commitment to patient care
Commitment to the mission and vision of the organization
Retaining quality employees
Creating competency tools to ensure staff meets expectations and reduces risks

Social responsibility Ethical medical and financial practices by the organization

Market share can be established in a variety of ways, depending on the organization’s circumstance. A large city may define the overall market for an urban hospital. A rural
health care organization might view a share in a county or a portion of a state as its market.

Innovation opportunities in health care are abundant. The delivery of health care invites innovative medicines, treatment systems, delivery systems (such as telehealth),
accounting practices, fundraising programs, and many others.

Productivity efforts require balance. Managers seek to achieve efficient delivery rates while tending to patient needs. No one likes the feeling of being treated as a number or
simply as a task to be completed. Consequently, human interaction and efficient medical care must achieve some type of equilibrium in health care organizations.

Physical and financial resources include the actual health care building or facility, medical equipment, computer systems, and other major long-term assets. Financial resources
such as major gifts, revenues from operations, stock sales, loans, and leases help obtain the high-quality major assets needed to support medical organizations.

Profitability standards most clearly apply to for-profit organizations. However, even nonprofits must generate revenues and funds to continue operations. One of the primary
responsibilities of top management is to ensure solvency, if not profitability.

The concept of manager performance and development contains many unique aspects. In situations where physicians supervise medical students and medical residents, a
primary part of the job involves teaching, training, and the correction of mistakes. In other parts of the hospital, management of such activities as accounting and facilities care
more closely resemble those in other industries. Creating managerial toolboxes to help current and future managers and leaders evolve and grow is an effective way to develop
talent, especially in those who are promoted internally into such roles.

Employee performance and attitudes are often even more critical in a health care environment. For example, the unique nature of a hospital, which remains open 24 hours per
day, 365 days per year, requires that some employees work third shifts (12 a.m. to 8 a.m.), weekends, and holidays. High levels of stress are routine in such organizations, both
in key parts of the year, such as the flu season, and in the basic nature of some jobs, such as assisting in an emergency room. Other medical practices are able to close on the
weekends and hold more normal operational hours. The difference in working hours can lead to inevitable comparisons by individuals who could work in either situation, such
as nurses and office staff members. Maintaining morale constitutes a primary strategic challenge for many health care managers and organizations.

Social responsibility is of course often highly visible in health care. The environment is often fast-paced all while people’s lives are at stake. Health care workers and
organizations must seek to effectively address the needs of the public in a safe, effective, and also ethical manner.

Two additional strategic objectives of particular importance to the health care environment are accreditation and community acceptance and involvement. Achieving these goals
is often dependent on achieving the goals we just discussed. Let’s look at each of these in more depth.

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Employees at hospitals often work long shifts and deal with high
stress levels, which can make maintaining employee performance
and attitudes a strategic challenge for these organizations.

Accreditation
Most health care organizations also pursue accreditation as part of an overall strategic effort.
Accreditation is the process health care providers go through to ensure they meet specified standards
across a range of services. Two of the primary benefits of accreditation are (1) strengthening of patient
safety and quality care efforts and (2) increased community confidence in the quality and safety of care
and treatments. Having these important benefits securely in place through accreditation allows
organizational managers to pursue other activities, including various innovative strategies. Additional
benefits of accreditation include a stronger image in the marketplace that can be advertised and
promoted to the general public, greater patient confidence in the organization, meeting state
requirements, improved morale in the workforce, and assurance of quality and continuous improvement
that result from pursuing accreditation status.

One major accrediting agency for health care in the United States is The Joint Commission
(https://www.jointcommission.org/) , an institution that maintains accrediting activities for several types of
health care organizations, including the following:

Ambulatory health care
Behavioral health care
Critical access hospitals
Home care
Community hospitals
Laboratory services
Nursing and rehabilitation services
Diagnostic imaging facilities

The accreditation progr

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