Strategery

(With apologies to Will Farrell)

By

Leonard
Zwelling

       I am now working in the second
organization in which a strategic planning effort has been launched. Like most
such efforts, it is likely that this one will probably generate less benefit
than the gathered board and executives anticipated at the opening meetings to
organize the planning process. Why is that so often the case?

Millions of dollars are spent. Costly consultants are
called in. Thousands of hours of personnel time are spent and entire forests
become deserts generating paper for strategies that usually wind up on a shelf
somewhere forgotten as soon as the ink is dry and the three-hole binders are snapped
shut. Why?

       The most common explanations you hear
are:

1.  There was insufficient buy in from
the rank and file

2. The plan was great but the
implementation was lousy

3. Information Systems were  inadequate to support the plan

4.The plan was too complicated to be
practically applied to the organization

5. We just don’t do this very well

              I
tend to ascribe to the latter reason of the five listed, but I think there is a
more overriding one. Most strategic plans aren’t strategic plans at all. They
tend to be lists of goals and desired accomplishments that are really
masquerades for making more money. They are about what to do, not HOW to do it!
Yet it is the how that distinguishes one organization from another both in
terms of reputation and in terms of success.

              In
my opinion, a strategic plan has to have several components to be of use.

              First,
as silly as this sounds, it is imperative that an organization wishing to do a
plan must decide what business it is in. For example, what business is MD
Anderson in and by business I mean what generates the money? That’s easy. It’s cancer
patient care. Thus, I believe that MD Anderson is mainly in the business of
caring for patients with cancer. Yes, MD Anderson does research, education and
prevention, but the BUSINESS of MD Anderson is patient care. That other stuff
MAY provide a strategic advantage if and only if it generates more patients (or
perhaps a certain kind of patient) to care for. I believe for research this may
be true, especially clinical research. Education and prevention, probably
contribute less to the bottom line and thus the dollars spent on these
activities must be carefully considered before being spent as they will likely
not generate a significant return on investment. They are a fixed cost. They
may be very worthwhile activities, but their value may not be readily monetized
and thus, as costs, must be examined carefully.

              Second,
what is the model by which MD Anderson will compete and win in its business. My
guess is that MD Anderson will choose a quality model of patient care that can
be termed a product differentiation, niche strategy in health care. MD Anderson
is the Tiffany of cancer care (it ain’t a doc in the box nor does it do primary
care). For this MD Anderson would rightly expect to be paid a premium price
(like Tiffany compared with Zale’s), but it cannot really get that because
revenue in cancer care is not driven by market forces that can permit premium
pricing. (The same care given at MD Anderson and a doctor’s office in Lubbock may
garner similar reimbursement despite the far greater overhead at Anderson).
Insurance companies, the federal government and large, self-insured employers
dampen the forces of supply and demand in health care by negotiating down
payment levels. This must be taken into account when devising a strategy for
competition, particularly as it applies to payer mix, the proportion of
patients with these various forms of coverage.

              Third,
what are you not going to do? Other than football and astronomy, it is not
clear to me what MD Anderson will not do given the presence on its campus of a
cardiac cath lab, a sleep lab and goodness knows how many basic science labs
which are pure cost items given the fact that even with the federal overhead
rate on grants in excess of 50%, research loses money that must be covered by
patient care revenues which are being pressured downward every day. And
remember, the opportunity cost of certain activities that are utilizing money
and personnel and space that could be used for more direct and more heavily
reimbursed patient care also must be considered.

              So
what’s a President to do when it comes to strategic planning for a health care
organization like a free-standing cancer center? The simple answer is that no
one knows because the entire landscape is in such flux. Will Medicaid expand in
Texas and is that a good thing? Will some forms of federal payment given to
hospitals that care for the indigent go away and how does that affect the
bottom line? How can fixed costs (buildings and people) be converted to
variable costs such that expenses can be flexed in accord with clinical
activity and revenue should the latter decrease (or Wall Street hiccup again)?
How much should be invested in information systems and which ones? How can the
costs of such systems ever be recouped? What should be the expansion plans?
Local vs. distant sites? Why grow at all? What kind of leadership will be
needed to implement and maintain whatever plan is determined to be the next
one? What does it cost to see the next patient? What does it cost to hire the
next faculty member? Where on the economies of scale curve is MD Anderson?
(It’s a biphasic curve and only through multiple measurements over time can
one’s locale be accurately be determined). Is it any wonder no one wants to
plan? It only generates more headaches.

              That
it does, but that’s why planning is top down and led by the people with the big
paychecks. Strategic planning is not a community-based activity. It is
CEO-driven and should be for that is what the CEO is paid to do.

              The
only remarkable thing is how many CEOs are making so much money doing it so
badly. In that, MD Anderson is not unique at all.

              The
lunch menu at a strategic planning retreat should not contain brown rice and
after dinner entertainment cannot be the singing of Kumbaya around a camp fire.
This is tough stuff in any industry and almost impossible to do well in health
care. But if you are going to try to do it, and you should for it forces you to
answer many hard questions with a clear-eyed evaluation of your business
processes and your personnel, do it honestly without rationalizations or
denial.

              In
fact, assuming that the company you are planning for is doing poorly is a good
starting point. Assuming that you are starting from scratch (see Re-engineering
the Corporation by Hammer and Champy) is another good strategy to get to a
strategy. Start with a blank piece of paper and design the company and plan.
How much like the current structure would that look like? Assume nothing.
Preserve nothing a priori. No sacred cows. No untouchables.

              Now—strategerize.  

Leonard Zwelling