Creating Strategic Alternatives

Learning Objectives

After reading this chapter, you should be able to:

• 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

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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.

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CHAPTER 6Section 6.1 Identifying Key Strategic Issues

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.


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.

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CHAPTER 6Section 6.1 Identifying Key Strategic Issues

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.


© Peter Spiro/iStock/Thinkstock

Creating a hospital environment where excellence is the way of doing things is sometimes a matter of changing entrenched attitudes.

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CHAPTER 6Section 6.1 Identifying Key Strategic Issues

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?

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CHAPTER 6Section 6.1 Identifying Key Strategic Issues

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.

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CHAPTER 6Section 6.2 Overcoming Obstacles

Discussion Questions

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

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CHAPTER 6Section 6.2 Overcoming Obstacles

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.

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CHAPTER 6Section 6.2 Overcoming Obstacles

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.

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CHAPTER 6Section 6.2 Overcoming Obstacles

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.

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CHAPTER 6Section 6.2 Overcoming Obstacles

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.

Discussion Questions

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.

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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.

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CHAPTER 6Section 6.3 Crafting Strategic Alternatives

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


Leap over blocks

Current Situation

Ideal Solution

Improved Situation

Strategic Blocks



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CHAPTER 6Section 6.3 Crafting Strategic Alternatives

• 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.

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CHAPTER 6Section 6.3 Crafting Strategic Alternatives

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?

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CHAPTER 6Section 6.3 Crafting Strategic Alternatives

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.

Discussion Questions

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.


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CHAPTER 6Section 6.3 Crafting Strategic Alternatives

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,

© 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?

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CHAPTER 6Section 6.3 Crafting Strategic Alternatives

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).

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