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

* Operations: Achieve top 75th percentile for salaries, wages and benefits, and supplies costs for 300-bed peer hospitals by 2006.

Step 3. Develop Strategy

Achieving focused business objectives, which constitute the organization's strategic direction, requires that strategies be clearly defined and supported by actionable steps. It is important to avoid developing myriad tasks and to-do lists, which lend to overwhelm the management team and result in poor implementation. To help management focus, strategies can be classified as bedrock, bridge, or visionary.

Bedrock strategies. Required to maintain long-term viability, these strategies relate to core services investment, marketing/branding, efficient business systems, and operational effectiveness. These are day-to-day tactical actions, typically implemented below the executive suite.

Bridge strategies. These are enabling strategies directed at acquiring capital, resources, and capabilities. They focus on areas such as financial management, resource deployment, recapitalization, and fund-raising. Bridge strategies typically require focused executive attention until they are complete.

Visionary strategies. These strategies comprise the few initiatives that narrow or close the gap between the current state and the vision. They focus on service line positioning strategies, facility and technology deployment, top-tier operational performance, and new service/revenue development. Visionary strategies tend to be resource- and time intensive, and require extensive executive oversight.

When formulating a strategy, it is important to delineate between truly strategic business initiatives and those that are simply ongoing management responsibilities.

Step 4. Conduct an Impact Analysis

An impact analysis including market testing and financial modeling--will help ensure that a strategy has merit. This analysis may include identifying specific capital and resource requirements and drawing on the experience of those who have pursued similar strategies. Many hospitals take their strategies "on faith" without testing the financial reality of their strategic direction. For visionary strategies in particular, which may require substantial investment, it is important to understand the associated range of risk and reward. Organizations that employ this level of strategy assessment establish an added measure of accountability for a strategy's success.

The impact analysis recognizes that financial position is dynamic. Strategies may be limited by current financial realities, but they can drive future financial realities. Bedrock and bridge strategies can create the future financial reality that supports the visionary strategy. Near term initiatives with near-term financial performance targets can create the resources for long-term initiatives. A thorough impact analysis provides insight from two perspectives: feasibility and desirability.

Feasibility. If it implements the strategy, is the organization viable on an ongoing basis? Is the plan feasible? Does it rely on heroic debt issuance or cost reduction?