Strategic business planning linking strategy with financial reality: linking long-term strategy with near-term financial and operational realities makes for a clearer march toward key objectives

Healthcare Financial Management, Nov, 2004 by Andrew K. Bachrodt, J. Patrick Smyth

The future market model may help identify new opportunities to create strategic advantage or advance an existing position. A comprehensive clinical service line breadth-depth assessment may also be needed to identify opportunities for new services and barriers to growth around existing service line priorities.

Understanding potential vulnerabilities is equally important. Although falling short of a community standard or basic business practice is certainly a weakness, the potential for others to easily duplicate an advantage, or to capitalize on a new opportunity, highlights a strategic vulnerability. Hospitals that are disciplined in strategic business planning minimize their weaknesses and develop plans to address potential vulnerabilities.

At the completion of the assessment, the hospital should have a clear understanding of its current and forward-looking strategic situation. From this evaluation, the hospital should critically assess the strategic and business implications for its organization and determine key issues on which to focus. It is in this context that strategic business objectives should be identified.

Step 2. Identify Business Objectives

The future market scenario, financial outlook, and strategic advantage/vulnerability assessment serve as the catalyst for validating or changing the strategic vision and establishing a hospital's business objectives or strategic goals. In the strategic planning framework, an organization's objectives stand as pillars supporting its vision. That vision must be clear and simple, outlining the organization's broad strategic direction.

Disciplined organizations define their business objectives in specific, measurable terms to be achieved within a certain timeframe. Those objectives then drive the development of strategies. Typically, the fewer business objectives identified, the more strategically focused the organization; more than 10 objectives may indicate an absence of focus. Note, however, that the organization's strategies in aggregate should result in the achievement of the business objectives, while individual strategies may also have specific, usually annual, performance measures.

The most common business objective categories are market position, financial position, quality, and operations. Examples include:

* Market position: Achieve 50 percent market share overall, with 57 percent market share for surgical services and 65 percent for cardiovascular services, within the primary service area by 2008.

* Financial position: Achieve or exceed target operating margin, capital structure, and days cash on hand in accordance with the strategic financial plan. (Although this metric is often tied directly to a targeted credit rating, the targets should be driven primarily by the strategy, with a keen understanding of associated risk, as reflected in the assumed credit rating.)

* Quality: Achieve top 50th percentile for clinical performance in heart attack, heart failure, and pneumonia by 2007, in accordance with the CMS National Voluntary Hospital Quality Reporting Initiative.