Module 4 Discussion

Module 4 Discussion

Before taking on an assignment, you will review the content and only use the attached references and resources. No plagiarism or original work is to be done. NO OUTSIDE SOURCES ALLOWED!!

Organizational Structure Strategies

Must be at least 300 words not to include the references

Organizational structure has a direct impact on the strategies a leader may use during a strategic planning process. For this discussion, discuss the following:

  • Whether organizational structure influences the strategies developed.
  • Factors that affect the successful use of functional, multidivisional, and matrix structures.
  • Whether each of the three levels of an organization (corporate, unit, & functional units) can have a different organizational structure and strategic plan. Why or why not?

Your posts will be graded on how well they meet the Discussion Requirements posted in the “Before You Begin” section. Please review this section as well as the discussion scoring rubric.

Diagnosing and Changing Organizational Culture: Based on the Competing Values Framework, Third Edition

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Chapter 2: The Organizational Culture Assessment Instrument


The Organizational Culture Assessment Instrument (OCAI) is probably the most frequently used instrument for assessing organizational culture in the world today. In the past twenty years, it has been used extensively in scholarly research and in thousands of organizations of which we are aware. It has been found not only to be an accurate assessment of organizational culture, but significant relationships have been found between culture as assessed by the OCAI and a variety of indicators of organizational effectiveness.

A review of scholarly publications in just the past ten years, for example, reveals that more than sixty doctoral dissertations have investigated the relationship between organizational culture and a variety of outcomes using the OCAI. In addition, more than one hundred published studies have explored the relationships between organizational culture and factors including management and leadership success, quality and total quality management (TQM), teamwork, organizational effectiveness, educational and teacher success, athletic achievements, competitive strategy, information systems, physical health, innovation, career selection, communication, work and life satisfaction, turnover, generational differences, gender preferences, religious organization performance, and cross-national differences.

The instrument has been used in a variety of industry sectors, including health care, education, religious organizations, national and local governments, community colleges and universities, libraries, data warehouses, military organizations, recreational departments, airlines, ethnic tribes, hotels, athletic teams and national athletic organizations, energy, family businesses, tobacco and alcohol firms, and M.B.A. programs. Countries represented in these studies include Abu Dhabi, Argentina, Canada, China, Dubai, the European Union, France, Germany, Great Britain, Greece, Iran, Iraq, Jamaica, Kenya, Latin America, Netherlands, Qatar, Russia, Senegal, Singapore, Slovenia, South Africa, South America, South Korea, Spain, Taiwan, and the United States.

Because of its predictive power, the OCAI is deceptively parsimonious. One consultant complained to us that having only six items is too simplistic to get an accurate reading of an organization's culture. As it turns out, longer versions of the OCAI containing more items have been developed (one is a twenty-four-item version), but the six items in the version provided in this chapter have been found to be equally predictive of an organization's culture as the longer versions. The six items merely describe some of the fundamental manifestations of organizational culture. These dimensions are not comprehensive, of course, but they address basic assumptions (dominant characteristics, organizational glue), interaction patterns (leadership, management of employees), and organizational direction (strategic emphases, criteria of success) that typify the fundamentals of culture (Cameron and Ettington, 1988).

The OCAI is designed to help identify an organization's current culture or the culture that exists today. This is step 1 in the process. The same instrument helps identify the culture that organization members believe should be developed to match future demands of the environment and the opportunities to be faced by the organization in the coming five years. This is step 2 in the process.

Instructions for Diagnosing Organizational Culture

The purpose of the OCAI is to assess six key dimensions of organizational culture, which are explained in some detail in Chapter Three. We encourage you to take time to complete the OCAI yourself as you move through the chapter. In completing the instrument, you will be providing a picture of the fundamental assumptions on which your organization operates and the values that characterize it. There are no right or wrong answers for these items, just as there is no right or wrong culture. Every organization will most likely be described by a different set of responses. Therefore, be as accurate as you can in responding to the items so that your resulting cultural diagnosis will be as precise as possible.

You are asked to rate your "organization" in the items. Of course, you may consider multiple organizations—your immediate team, your subunit, or the overall organization. To determine which is the best organization to rate, consider the organization that is managed by your boss, the strategic business unit to which you belong, or the organizational unit in which you are a member that has clearly identifiable boundaries. Because the instrument is most helpful for determining ways to change the culture, focus on the cultural unit that is the target for change. For example, it may make little sense to try to describe the culture of the overall Ford Motor Company. It is simply too large and complex. The new product design unit is significantly different from a stamping plant or from the customer assistance center. Therefore, as you answer the questions, keep in mind the organization that can be affected by your change strategy.

The OCAI consists of six items (see Figure 2.1), each with four alternatives. Divide 100 points among these four alternatives, depending on the extent to which each alternative is similar to your own organization. Give a higher number of points to the alternative that is most similar to your organization. For example, on item 1, if you think alternative A is very similar to your

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organization, alternatives B and C are somewhat similar, and alternative D is hardly similar at all, you might give 55 points to A, 20 points each to B and C, and 5 points to D. Just be sure that your total equals 100 for each item.

Note in Figure 2.1 that the left-hand response column for the instrument is labeled "Now." These responses mean that you are rating your organization as it is currently, not as you would like it to be or as you hope it could be. Complete that rating first. The right-hand column refers to your organization as you think it should be in five years in order to be spectacularly successful, achieve its highest aspirations, become an outstanding example of high performance, outstrip the currently stated goals, or become the benchmark for your industry.

1. Dominant Characteristics Now Preferred

A The organization is a very personal place. It is like an extended family. People seem to share a lot of themselves.

B The organization is a dynamic and entrepreneurial place. People are willing to stick their necks out and take risks.

C The organization is very results oriented. A major concern is with getting the job done. People are very competitive and achievement oriented.

D The organization is a very controlled and structured place. Formal procedures generally govern what people do.

Total 100 100

2. Organizational Leadership Now Preferred

A The leadership in the organization is generally considered to exemplify mentoring, facilitating, or nurturing.

B The leadership in the organization is generally considered to exemplify entrepreneurship, innovation, or risk taking.

C The leadership in the organization is generally considered to exemplify a no-nonsense, aggressive, results- oriented focus.

D The leadership in the organization is generally considered to exemplify coordinating, organizing, or smooth- running efficiency.

Total 100 100

3. Management of Employees Now Preferred

A The management style in the organization is characterized by teamwork, consensus, and participation.

B The management style in the organization is characterized by individual risk taking, innovation, freedom, and uniqueness.

C The management style in the organization is characterized by hard-driving competitiveness, high demands, and achievement.

D The management style in the organization is characterized by security of employment, conformity, predictability, and stability in relationships.

Total 100 100

4. Organization Glue Now Preferred

A The glue that holds the organization together is loyalty and mutual trust. Commitment to this organization runs high.

B The glue that holds the organization together is commitment to innovation and development. There is an emphasis on being on the cutting edge.

C The glue that holds the organization together is the emphasis on achievement and goal accomplishment.

D The glue that holds the organization together is formal rules and policies. Maintaining a smoothly running organization is important.

Total 100 100

5. Strategic Emphases Now Preferred

A The organization emphasizes human development. High trust, openness, and participation persist.

B The organization emphasizes acquiring new resources and creating new challenges. Trying new things and prospecting for opportunities are valued.

C The organization emphasizes competitive actions and achievement. Hitting stretch targets and winning in the marketplace are dominant.

D The organization emphasizes permanence and stability. Efficiency, control, and smooth operations are important.

Total 100 100

6. Criteria of Success Now Preferred

A The organization defines success on the basis of the development of human resources, teamwork, employee commitment, and concern for people.

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6. Criteria of Success Now Preferred

B The organization defines success on the basis of having unique or the newest products. It is a product leader and innovator.

C The organization defines success on the basis of winning in the marketplace and outpacing the competition. Competitive market leadership is key.

D The organization defines success on the basis of efficiency. Dependable delivery, smooth scheduling, and low- cost production are critical.

Total 100 100

Figure 2.1: The Organizational Culture Assessment Instrument — Current Profile

We invite you to take time now to complete the six items for your own organization. Rate the organization in its current state using the "Now" column. Then complete the instrument the second time using the "Preferred" column. In this chapter, we provide instructions for scoring the instrument and in Chapter Four for creating an organizational culture profile for your company. In Chapter Five, we give instructions for involving your entire organization in developing a more broad-based culture assessment as well as creating a strategy for cultural change.

Scoring the OCAI

Scoring the OCAI is easy. It requires simple arithmetic calculations. The first step is to add together all A responses in the "Now" column and divide by 6. That is, compute an average score for the A alternatives in the "Now" column. You may use the worksheet in Figure 2.2 if you'd like. Next, add together all B responses and divide by 6. Repeat this computation for the C and D alternatives.

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Figure 2.2: Worksheet for Scoring the OCAI

The second step is to add all A responses in the "Preferred" column and divide by 6. In other words, compute an average score for the A alternatives in the "Preferred" column. Again, use the worksheet in Figure 2.2 if you'd like. Next, add together all B responses and divide by 6. Repeat this computation for the C and D alternatives.

Following an explanation in Chapter Three of the framework on which the OCAI is based, we explain in Chapter Four the meaning of your average A, B, C, and D scores. Each of these scores relates to a type of organizational culture. In Chapter Four, we also provide a worksheet for plotting these scores or to draw a picture of your organization's culture. This plot serves as an organizational culture profile and is an important step in initiating a culture change strategy.

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  • Chapter 2: The Organizational Culture Assessment Instrument
  • Overview
  • Instructions for Diagnosing Organizational Culture
  • Scoring the OCAI





Learning Objectives

After reading this chapter, you will

• understand the role of budgets and controls in the strategic planning process;

• have learned methods of implementing strategy;

15 Many hospitals and health systems have strong strategic plans in which they outline long-term goals and tactics to reach those goals. Where organiza- tions tend to fall short is in the execution stage, primarily due to a lack of accountability, according to Scott Becker, CEO of Conemaugh Health System in Johnstown, Pa. “Everybody has a great strategic plan. The organizations that are successful are the ones that effectively operationalize it,” he says. . . .

Once goals are set, leaders need to determine the critical success factors [CSF] to meet those goals. . . . Every CSF should have an assigned leader, a set of key performance indicators [KPIs], and action steps or tasks to be completed to achieve the CSF. KPIs track the quantitative progress or effectiveness of a CSF in achieving a measurable target. For example, increased margins may be measured by KPIs such as reduced expenses per adjusted admission, reduced readmission penalties and shorter length of stay. . . . Hospital leaders need to measure KPIs to determine areas for improvement and then create action plans to meet KPI targets. . . . Hospital executives need to work with medical staff leaders and other stakeholders to develop specific plans to reach their objectives. . . . Emphasizing the link between assigned actions and the hospital’s overall goals helps employees understand how they personally contribute to the organization’s mission and vision, which is essential for employee satisfaction and the hospital’s ability to meet its goals.

—Sabrina Rodak, “Creating Accountability in Healthcare Strategic Plan Execution,” 2013

C o p y r i g h t 2 0 1 8 . A U P H A / H A P B o o k .

A l l r i g h t s r e s e r v e d . M a y n o t b e r e p r o d u c e d i n a n y f o r m w i t h o u t p e r m i s s i o n f r o m t h e p u b l i s h e r , e x c e p t f a i r u s e s p e r m i t t e d u n d e r U . S . o r a p p l i c a b l e c o p y r i g h t l a w .

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Strategic Healthcare Management340

• be familiar with the various bodies and structures involved in strategic planning, along with their roles;

• have discovered ways in which progress toward strategic goals can be monitored; and

• know what a balanced scorecard is and how it can be used to monitor strategic planning efforts.

Formulating a cogent, meaningful strategy is a critical organizational func- tion. However, even the best plan document is worthless if the organiza- tion does not implement it. Sadly, a top strategy consulting firm has found

that more than one-quarter of companies having strategic plans lacked an execution plan and 45 percent failed to track the accomplishment of strategic initiatives (Dye and Sibony 2007). Some top executives think that strategy formulation is their primary responsibility and strategic implementation can be delegated downward. As seasoned, successful executives can attest, strategy formulation is only the beginning; the hard work comes after. As Arthur A. Thompson and colleagues (2016, 287) attest, “Experienced managers are well aware that it is a whole lot easier to develop a sound strategic plan than it is to execute the plan and achieve desired outcomes.”

Many executives engage outside consultants to stimulate strategic think- ing, evaluate their organization’s situation, and put their strategic direction into words, thinking they can preserve time for what they consider to be more important tasks. However, as recounted in exhibit 14.3, when consultants depart, many times all they leave are a series of nice PowerPoint slides or a brightly covered, bound document. Leaders who have limited involvement in the planning process may find translating the strategic document into action a challenging and difficult task.

The successful implementation of strategic thought is preceded and fol- lowed by critical activities that involve different skills and tools. As shown in exhibit 15.1, the strategic action cycle includes strategic planning, budgeting, implementation, and controlling or monitoring. Implementation integrates budgeting, monitoring, and evaluation. Organizations should assign an appro- priate mix of internal and external personnel to these various tasks. In addition, performance standards must be established so that progress on implemented strategies can be measured and any problems can be controlled.

This chapter discusses methods for transitioning from strategy formula- tion to implementation to monitoring, identifies those who should be engaged in the cycle, and presents balanced scorecards and budgets as means of monitor- ing and evaluating strategic progress. We will examine methods for organizing personnel, selecting appropriate budgetary targets, creating critical success factors, and integrating budgets and strategy.

Strategic action cycle The four stages of the strategic action cycle are (1) strategic planning, (2) budgeting, (3) implementing strategy, and (4) controlling problems or monitoring progress.

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Chapter 15: Implementing, Monitor ing, and Evaluat ing Strategy 341

Engaging the Right Structures and the Right People

Ideally, strategic thinking and strategic planning should be infused throughout an organization and drive its actions. As discussed in chapter 12, organizational struc- ture can significantly affect the formulation and implementation of strategy. Just as vital, or even more so, is having the correct people prepare and enact strategy.

For employees to become actively involved in the strategic action cycle, they must perceive it as a process, not an event. If they believe that the strategic plan will be used to change and improve the organization, they will be much more easily engaged. As exhibit 15.2 explains, few will choose to participate when planning is directed at achieving a non-mission-based end.

How to organize the strategic process and whom to involve are critical decisions. Almost all organizations designate someone to be in charge. This person is responsible for facilitating the process, coordinating data and meet- ings, and ensuring that key tasks are achieved. She does feasibility and planning studies; completes environmental assessments; and develops the plan’s format, timetables, and methods for evaluation.

An organization’s CEO must direct and be highly involved in overall strategic planning as a strategist, organizer, and tactician, but experts recom- mend that the person charged with leading the day-to-day strategic process be someone other than the CEO (Zuckerman 2005). Consensus building and visioning discussions are difficult when CEOs have this role because their power and authority can easily inhibit the free flow of dialogue.

Strategic Planning



Controlling/ Monitoring

EXHIBIT 15.1 The Strategic Action Cycle

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However, the person responsible for facilitating strategic planning gener- ally reports directly to the CEO. Depending on the organization, this person’s title might be chief planning and development officer, director of planning, vice president, coordinator, or chair, or—depending on an organization’s size, market, expertise, and culture—this person may be responsible for just strategy development or for any or all of the many related duties that follow:

• Strategic formulation • Business development • Data generation and analyses • Marketing • Public relations • Change management or organizational development • Project management

In large systems especially, this person also integrates strategic planning and system or network development (Bhasin 2016).

Although the participants in the process can be organized in various ways, the structures described in the following sections generally are consid- ered core groups.

Governing Board The governing board has principal responsibility for the strategic planning process. Under a governing board’s direction, organizations have completed

Governing board An overarching entity whose principal responsibility is to oversee and direct an organization.

Many accreditation bodies now require that organizations produce a stra- tegic plan if they wish to become or remain accredited. Bob, the chair of a department that was soon to receive an accreditation visit, was fully aware of this requirement. He also knew that his department did not have a function- ing strategic plan. He carefully gathered past attempts at strategic planning, combined the results into a 20-page plan proposal, and circulated it to the members of his department for comment.

At the next department meeting, Bob asked his colleagues for their feedback. One senior member bluntly asked Bob, “What is the purpose of this document? Are we going to try to improve our department, or is it just for accreditation?” Bob sat back as he contemplated this question and then honestly answered that it was primarily for accreditation purposes. Given this answer, his colleagues commented that what he had written was fine and proposed no changes to the plan.

Clearly, the plan was created for an event (to receive accreditation); it did not detail a process for improving the department. The approved plan sat unopened on Bob’s desk until the accreditation visit.

EXHIBIT 15.2 Is Strategic Planning a

Process or an Event?

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Chapter 15: Implementing, Monitor ing, and Evaluat ing Strategy 343

strategic plans in as little as one day at a retreat. However, development of a strategic plan typically takes 40 to 120 hours of board and committee meet- ing time. The duration depends on the availability of needed information, the organization’s expertise (or lack thereof), and the type and quality of staff and resources allocated to the process.

The governing board bases the guidelines it sets for the development of a strategic plan on the organization’s mission, vision, and values. The board’s responsibilities include

• approval of the organization’s mission, vision, and goals; • discussion and approval of key strategic directions; • final approval of the strategic plan document; and • periodic monitoring of implemented strategies.

Strategic Planning Committee The strategic planning committee generally reports to the governing board and may consist of both board members and nonmembers. This committee may be either standing (i.e., permanent) or ad hoc. This committee engages key stakeholders who are not represented on the governing board. During the development of the strategic plan, the committee typically meets once every two weeks for two to six hours. The strategic planning committee is responsible for

• organizing and facilitating the planning process; • determining key stakeholders’ needs; • regularly (usually annually) reviewing the organization’s mission and

vision; • monitoring trends and periodically reviewing the internal and external

environment; • developing a strategic plan draft, including planning goals and

objectives for board consideration; and • evaluating progress toward strategic objectives.

Medical Staff (in Clinical Organizations) In the United States, the medical staff of a hospital primarily comprises inde- pendent practitioners, although the number of doctors employed by medical facilities today is greater than it was in the past. For clinical operations, including hospitals, surgical centers, nursing homes, hospices, and so forth, physicians are key stakeholders and the principal source of referrals. Thus, the involvement of the medical staff in strategic planning is fundamental to properly creating and executing a strategic plan. Key medical staff should serve on the governing board, the strategic planning committee, and other task forces established for

Strategic planning committee A standing or ad hoc committee that is responsible for organizing and leading an organization’s strategic planning process.

Medical staff An organized body of licensed professionals who are approved and given privileges to practice medicine at hospitals and other healthcare facilities.

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the strategic planning process. The governing board may also enjoin medical staff members to organize their own planning committee and responsibilities. The medical staff committee should report to the strategic planning committee.

Consultants Organizations often hire planning consultants for their expertise, data resources, extra manpower, and insight regarding future changes and innovative strategies. Conditions that might motivate an organization to bring in outside consultants include a lack of internal staffing or expertise and the need for a neutral facilita- tor between leaders and key stakeholders who hold strongly vested positions regarding controversial opinions or proposed future directions.

Consultants also can provide an objective view of the organization’s strengths and weaknesses. Their outside perspective can help break down departmental barriers that often exist in large, complex organizations. Good consultants bring lessons learned from similar organizations, fresh perspectives, and novel tools and can mediate turf battles. Their involvement also can help an organization maintain strategic momentum and frankly evaluate its past performance (Griffioen 2016).

However, consultants can be very expensive to hire and, if not man- aged correctly, can create significant problems. The following points are a few recommendations for dealing with consultants:

• Clearly specify up front what you hired the consultants to produce. Define their deliverables in a visible, unmistakable manner.

• A consulting firm, even one with a great international reputation, is only as good as the individuals assigned to the project. Most firms assign junior staff to projects. Prior to the engagement, find out who will be assigned to your project. Review their backgrounds and experience, and insist on working with more senior consultants, especially on critical project aspects.

• Do not turn a project over to a consulting firm. Make time to meet with the consultants on a consistent basis. Meetings keep projects on track and focused on desired results.

• Consider establishing an external advisory board of experts to review and evaluate the consultants’ progress. By critiquing the consultants’ planning efforts throughout the project, advisory boards improve the quality and functionality of project outcomes.

Monitoring Strategic Efforts

The results of strategic efforts should be regularly monitored so that manage- ment can determine what progress is being made and identify strategies that

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Chapter 15: Implementing, Monitor ing, and Evaluat ing Strategy 345

need to be adapted or adjusted. Most healthcare organizations establish metrics for their key strategic goals. However, research has suggested that some orga- nizations begin to make major strategic changes without establishing specific outcome measures beforehand. This oversight can derail change efforts and leave strategic goals unfulfilled (Walston, Lazes, and Sullivan 2004). Most claim to understand the need to quantify their objectives, but what Joseph Grenny, David Maxfield, and Andrew Shimberg (2007, 49) found is regrettably com- mon: “We were stunned at how few of the managers in the 40 companies we interviewed during our research had any reliable information about corporate performance at project execution. In spite of the fact that billions of dollars were spent in the form of strategic projects every year, only a handful could tell us what percentage performed to specifications.”

It is imperative that responsible parties set metrics and periodically com- pare strategic goals to actual results. Monitoring is important for the following reasons:

• It ensures that efforts are following the direction set by strategic planning.

• It helps organizations better achieve their goals and objectives. • It helps organizations evaluate the progress they are making toward

their mission and vision. • It helps organizations meet the needs of key stakeholders. • It helps managers to assess whether resources are being used efficiently. • It encourages ongoing improvement. • It provides a continuous basis for informed decision making and


Monitoring and review are not inspections focused on catching and punishing nonachievers. They are an ongoing process of learning and embed- ding positive change that advances organizations toward mission and vision fulfillment. If data suggest that an organization is deviating from the strategic direction it has set, managers should determine why it has derailed and whether environmental shifts or other causes might account for the deviation. If devia- tions are justified, leaders must adapt their plans to the new circumstances.

Monitoring involves collecting data and assigning key performance indicators (KPIs) to each strategic objective. Target metrics set for each KPI should be quantifiable, based on benchmarks, and challenging to achieve. They might be based on external benchmarks, such as market share and patient satis- faction scores of top-performing organizations, or internal benchmarks, such as recruitment of key personnel, patient volume, and service delivery improvements.

As discussed in chapter 8, there are two methods of monitoring and eval- uating data: (1) tracking organizational trends and (2) comparing organizational

Key performance indicators (KPIs) Critical milestones that can be used to measure progress toward an objective or a goal.

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data to data from other firms. Organizations can gather data periodically and note changes.

Consistent, periodic evaluation of the outcomes of their constituent goals and objectives is critical to the success of strategies. An appropriate group of leaders should conduct this evaluation at weekly, monthly, or quarterly meet- ings. To be able to evaluate outcomes, the group needs to know the following information about each strategy:

• Key objectives and expected results • Key indicators of successful progress • Existing status and challenges • Critical needs • Time frame for completion • Recommended actions

Monitoring Tools Gantt Charts Gantt charts are a useful tool for monitoring project status. A Gantt chart is a bar chart that displays the schedules of multiple projects, including their start and finish dates and percentage of completion. Gantt charts rapidly communi- cate the status of projects, critical dependencies, and key start and end points. A simple example of a Gantt chart is presented in exhibit 15.3.

Balanced Scorecards Many leading healthcare organizations elaborate on benchmarking and data trending by using an evaluative tool called the balanced scorecard. Tradition- ally, organizations have focused on financial and, perhaps, quality results. In many cases, each domain is reviewed separately without regard for the other. Companies often believe that “their existing control systems and performance- management processes (including budgets and operating reviews) are the sole way to monitor progress on strategy” (Dye and Sibony 2007). This belief results in strategic initiatives translated into budget targets or other financial goals. Although important, such an emphasis is not sufficient. A large portion of the strategic decisions cannot be tracked solely through financial targets but rather require a variety of measures to truly understand the progress on strategic initiatives (Dye and Sibony 2007). Balanced scorecards give leaders a more comprehensive perspective of their organization’s strategy. They have been implemented in a wide array of healthcare organizations with diverse “missions, services, products, and clinical settings” (Zelman, Pink, and Mat- thias 2003, 3).

Gantt charts Bar charts that lay out the schedules, steps, and time frames of a project or projects.

Balanced scorecard A monitoring system used to simultaneously evaluate multiple metrics and gather feedback on strategic progress.

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Chapter 15: Implementing, Monitor ing, and Evaluat ing Strategy 347

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Strategic Healthcare Management348

As shown in exhibit 15.4, a balanced scorecard expands monitoring to include at least the following metrics (Kaplan and Norton 2006):

1. Financial: Financial metrics that demonstrate achievement of the organization’s mission (e.g., profits, revenue growth, return on investment, expense reductions)

2. Customer or stakeholder: Impacts the organization must make to satisfy customers, funders, and other key stakeholders (e.g., customer acquisition, retention, satisfaction)

3. Internal business processes: Level of excellence that business processes must reach to satisfy customers (e.g., production costs and volumes)

4. Learning and growth: Presence of leadership or managerial skills and infrastructure needed to achieve desired business outcomes (e.g., new services, employee satisfaction and retention)

These four dimensions have been included in the balanced scorecards of a wide range of companies in the healthcare sector. To reflect more accurately the complexity, professionalization, values, industry realities, and organizational realities, however, many organizations modify these dimensions. At times the category “People” has been considered separately from Customers or stakeholders because healthcare’s service ethos and reliance on physicians, nurses, and other professionals makes this category critical to success (Gurd and Gao 2007). Other healthcare organizations have included areas of quality of care, clinical outcomes, and access (Zelman, Pink, and Matthias 2003).

For example, when it established its balanced scorecard, Mayo Clinic increased the number of scorecard dimensions from four to eight to address

Mission and Vision

Learning and Growth

Customer/ Stakeholder

Internal Business Processes


EXHIBIT 15.4 Core

Dimensions of the Balanced


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Chapter 15: Implementing, Monitor ing, and Evaluat ing Strategy 349

its core principles more effectively (Curtright, Stolp-Smith, and Edell 2000). These included the following.

1. Customer satisfaction: ratings of primary and subspecialty care provided 2. Clinical productivity and efficiency: clinical productivity per physician

and outpatient visits per physician per workday 3. Financial: expense per relative value unit 4. Internal operations: average length of stay in days, patient complaints

per 1,000 patients, and patient waiting times for appointments 5. Mutual respect and diversity: percentage of staff from underrepresented

groups and employee satisfaction 6. Social commitment: Mayo’s contribution to society 7. External environmental assessment: environmental scan and market share 8. Patient characteristics: patient mix by geography and payer group

Exhibit 15.5 shows a further elaboration that presents the balanced scorecard of Sunnybrook Health Sciences Centre in Toronto, Ontario, Canada. Like that of Mayo Clinic, Sunnybrook’s balanced scorecard includes dimensions that reflect Sunnybrook’s key strategic goals, mission, and values.

Sunnybrook Health Sciences Centre is a large tertiary medical center in Toronto with more than 1,000 inpatient beds. Sunnybrook initially crafted a strategic plan in 2006 based on its mission and values; the plan was updated in 2016. The strategists segmented the plan’s goals and objectives into three key dimensions and used those dimensions to develop a balanced scorecard. Wishing to be transparent, Sunnybrook makes its balanced scorecard avail- able to the public by posting it online. It has also posted video clips of Sun- nybrook staff and physicians explaining the various measurements.

The scorecard’s nine critical goals are divided among the three dimen- sions, each with quantitative metrics. To view the status of its goals quickly, Sunnybrook color-codes each goal’s indicators as follows:

• Green = equal or better than the target • Yellow = moving toward the target • Orange = moving away from the target • Red = worse than the baseline and target

Policy requires that any indicator colored red be shared with the public to rein- force Sunnybrook’s accountability and focus the organization’s efforts. This app- roach ensures that Sunnybrook’s strategic priorities are clear to all stakeholders.

The following partial sample of its balanced scorecard report for 2016 includes goals and objectives in each of the three dimensions. Colors have been translated into gray scale as follows:

EXHIBIT 15.5 Sunnybrook’s Balanced Scorecard


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Strategic Healthcare Management350

• = equal or better than the target • = worse than the baseline and target

Dimension 1: Quality of Care

Goal 1 Improve the patient experience and outcomes through interprofessional, high-quality care

Objective 1.1.2 Lead provincially in patient outcomes for select quality- based procedures (QBPs)

Indicators Baseline Target

Previous Score

(Jan 2016 – Jun 2016)

Current Report

(Jul 2016— Dec 2016)

1.1 Stroke: 30 day in-hospital mortality (rate)

7.7 < 6.6 8.8 8.7

1.2 COPD: 30 day in-hospital mortality (rate)

7.0 < 7.0 3.6 2.8

Goals 2–5 have been omitted

Dimension 2: Research and Education

Goal 6 Lead in the development of innovative methods of teach- ing and learning

Objective 2.6.1 Enhance utilization of technology-enabled learning throughout Sunnybrook


Baseline Previous/

Annual Target Previ- ous/ Annual

Previous Score

(Apr 2016 – Sep 2016)

Current Report

(Apr 2016 – Mar 2017)

Simulation encounters of non-Sunnybrook staff learners (n)

487/973 ≤ 506/ ≤ 1,012 1,118 1,881

Simulation encounters of Sunnybrook staff learners (n)

≤ 209/695 ≤ 217/ ≤ 723 888 1,632

EXHIBIT 15.5 Sunnybrook’s

Balanced Scorecard


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Chapter 15: Implementing, Monitor ing, and Evaluat ing Strategy 351

Balanced scorecards have become, in essence, a prerequisite for receiving international awards, such as the Malcolm Baldrige National Quality Award for high-performing organizations. The Baldrige scorecard for healthcare includes seven criteria that must be met to attain this coveted award: excellence in (1) leadership; (2) strategy; (3) customers; (4) measurement, analysis, and knowledge management; (5) workforce; (6) operations; and (7) results. Only 22 healthcare organizations have been able to achieve this prestigious award since its inception in 2002 (National Institute of Standards and Technology 2016). See http:// patapsco.nist.gov/Award_Recipients/index.cfm for more information.

Goal 7 has been omitted

Dimension 3: Sustainability and Accountability

Goal 8 Deliver sustainable performance that meets health sys- tems expectations and commitments

Objective 3.8.2 To optimize capacity by ensuring patients are cared for in the right place

Corporate Acute Care Occupancy (%)

99 < 95 101 105

Goal 9 Create a culture of engagement, respect, and inclusive- ness that attracts and inspires talent to achieve excellence

Objective 3.9.1 To attract and retain talent

Indicators Baseline Target

Previous Score (Jan– Mar 2011)

Current Report (Oct 2016– Mar 2017)

Leadership promotion from within Sun- nybrook (%): Directors

62 > 50 61 64

Leadership promo- tion from within Sunnybrook (%): Managers

64 > 50 66 68

Leadership promotion from within Sunny- brook (%): Program Chiefs

74 > 50 72 74

Source: Sunnybrook Health Sciences Centre (2017).

EXHIBIT 15.5 Sunnybrook’s Balanced Scorecard (continued)

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Strategic Healthcare Management352

Balanced scorecards are also called dashboards because they resemble the display panels in cars. In the same way drivers can quickly examine multiple indicators on a car’s dashboard to ensure the vehicle is functioning properly, managers can quickly gather information about the status of a strategic goal from a balanced scorecard. To make scorecards easier to understand, organiza- tions may add colors or grades to show that they have made progress on each goal. For example, as described in exhibit 15.5, Sunnybrook assigns one of four colors to each goal’s indicators.

Other organizations use grades (from F to A) instead of colors. Like colors, grades enable managers to visualize the status of scorecard goals rapidly. The use of grades is advantageous because scores can be easily weighted and aggregated. A C grade or lower on a metric goal usually indicates leaders need to develop specific action plans to address the deficiencies and problems in that area. For instance, as one part of its balanced scorecard, a large company in Texas set the metrics in exhibit 15.6 for its employee development goal. Each metric was weighted equally and assigned a grade based on the company’s performance in that area. The company scored an A− for its performance on the average training hours per FTE (full-time equivalent) metric, a B for the time of internal hiring metric, and a B+ for the number of internal hires metric. These three grades averaged together equate to an overall grade of B+.

Balanced scorecards identify and highlight critical strategic objectives and enable managers to recognize situations in which areas are not perform- ing according to expectations more quickly. However, to be effective, this monitoring mechanism needs to be used at each level of the organization’s hierarchy. The measures and objectives tracked at lower levels may be different from those tracked at higher levels. However, key areas and their representative metrics should be consistent at all levels.

Despite the significant potential benefits of using balanced scorecards, they can present problems. One major issue is a lack of good data. To be useful, measures must be derived from accurate, relevant data. At times, organizations may find that data are unavailable and may have to create primary data. Data also can be expensive to obtain and maintain. For these and other reasons, scorecards should be considered only one indicator of the status of strategic

Dashboard A data visualization tool that displays the statuses of key metrics and performance indicators.

Overall Grade: B+

Metric Weight Grade

Average training hours/FTE 33% A–

Time of internal hiring 33% B

Number of internal hires 34% B+

EXHIBIT 15.6 Employee

Development Goal Results

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Chapter 15: Implementing, Monitor ing, and Evaluat ing Strategy 353

achievement. Organizations work in complex, complicated environments, and balanced scorecards provide only a snapshot of an organization’s progress. The data raise questions that should prompt further evaluation and investigation.

Whatever method is chosen for monitoring and evaluating strategic efforts, organizations should establish a periodic time frame for a review. Key indicators should be presented to and reviewed by the governing board, execu- tives, and middle managers on a frequent basis.

Integrating Strategy and Budgets

Almost all healthcare organizations use budgets. For strategic actions to be successful, an organization must integrate them into its budget process. Stra- tegic plans provide direction, while budgets provide the resources needed to implement the plans and monitor achievements. Strategic plans that are not connected fiscally to a budget are not based in reality. Conversely, allocation of budgets without strategic thinking would waste valuable assets.

Strategic planning guides the budget process and offers executives an opportunity to reevaluate their allocation of resources. As strategic directions change, budget allocations likewise need to change. Strategies are based on assumptions about available resources. Organizations’ resources are finite, and they must frequently make difficult decisions regarding their allocation. This section discusses the integration of budgets and strategies, as well as budgets’ role in implementation, monitoring, and evaluation.

Budget Process Most organizations engage in an annual budget process based on a fiscal year. Leaders should incorporate plans for the coming fiscal year into that year’s budget. For example, one of a healthcare system’s strategic priorities might be opening services in a new market over the next five years, including a new hospital, surgery center, radiology center, home health services, and durable medical equipment services. The healthcare system cannot implement all of these services in one year because the constraints of capital costs, available personnel, and development times would impede such an aggressive schedule. Therefore, an action plan such as the following must be created to prioritize and set time frames for projects:

Fiscal Year Project Implementation

20XX Radiology center, home health services

20XX Durable medical equipment, surgery center

20XX Hospital

Annual budget process Yearly generation of action plans and budgets to drive implementation of strategies and subsequent control of problems and evaluation of progress.

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Strategic Healthcare Management354

The segmentation of projects by year enables leaders to translate the projects into budgets. As shown in exhibit 15.7, annual projects and actions directly affect the capital budget, which in turn influences the statistical, operational, and cash budgets.

Adoption of a capital budget is an important first step. It includes the cost of major equipment and forecasts the impact that the projects will have on the organization’s finances, patients, clinical staff, and community (Zelman et al. 2014). For instance, the capital budget considers projected increases in patient volume resulting from the acquisition of new equipment and the provision of new services. In the earlier example, the healthcare system would determine how many more patient visits would be generated from implementation of the radiology center and home health services.

Managers also make statistical projections for existing services and merge those forecasts with the capital budget forecasts to form a statistical budget. Once the statistical budget is established, the organization can form its operating

Capital budget The estimated dollar amount to be expended on projects in a given fiscal period.

Statistical budget Merger of an organization’s capital budget forecasts with estimated statistical projections for an organization’s services or products for a given fiscal period.

Strategic thinking

Strategic plans/priorities

Annual projects and actions identified

Capital budget requirements and implications

Development of statistical budgets

Development of operating budgets: • Revenue budgets • Expense budgets

D ev

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m en

t o f c

as h

bu dg

et s

EXHIBIT 15.7 Relationship

Between Strategic

Planning and Budgets

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Chapter 15: Implementing, Monitor ing, and Evaluat ing Strategy 355

budget, which is generally displayed in the form of an operating statement (see chapter 9). The operating budget consists of two budgets: revenues and expenses. On completion of the operating budget, managers know what profits are expected (excess of revenues over expenses) and are able to complete their cash budgets.

Adherence to budgets is a means of monitoring an organization’s strat- egies. As discussed in the previous section on balanced scorecards, financial performance is one key aspect of control and evaluation.

Budget Variances Managers control and evaluate strategic efforts by examining the budget vari- ance (the difference between budgeted amounts and actual results):

Budget variance = Budgeted amount − Actual amount.

Exhibit 15.8 shows an example. The small surgical unit is a strategic venture by a healthcare system in a new market. In April 20XX, the system budgeted a volume of 2,000 surgeries but actually performed 1,000. This budget vari- ance of 1,000 fewer surgeries translates into a $150,000 loss of revenue and $10,000 savings on expenses, thus $140,000 less income. Clearly, these results are not good.

Managers’ response to the variance differs according to the influencing factor. Some issues are more controllable than others. For example, volume may vary because a physician is on vacation or because advertising is ineffective.

To understand the reasons for variances more thoroughly, managers should analyze influencing factors in more depth. Budget variances can result from changes in volume, price, and efficiency. In exhibit 15.8, the effect of these factors on the variances is not given. To learn how much changes in volume, price, and efficiency influence the budget variances, the analyst divides the vari- ances by their respective volumes (units) and then determines the variance per unit (see exhibit 15.9). The revenues per surgery (per unit) actually increased by $100, but the expenses per unit increased even more, by $165.

Budget variance The difference between a budgeted amount and actual expenditures.

EXHIBIT 15.8 Surgical Center Project Budget Variance from Actual Results, April 20XX

Budget Actual Variance

Volume (number of surgeries) 2,000 1,000 1,000

Revenues $500,000 $350,000 $(150,000)

Expenses $350,000 $340,000 $ (10,000)

Income (loss) $ 150,000 $ 10,000 $(140,000)

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Strategic Healthcare Management356

From these data, the dollar amounts of the effects of volume, price, and efficiency can be calculated using the following formulas:

Volume variance = (Actual volume − Budgeted volume) × Budgeted income/unit.

Price variance = (Actual price/unit − Budgeted price/unit) × Actual quantity.

Efficiency variance = (Budgeted expenses/unit − Actual expenses/unit) × Actual quantity.

As shown in exhibit 15.10, volume and efficiency negatively affected the vari- ance from budget, while price had a countering positive effect. This kind of information can help managers better understand and initiate further ques- tions regarding their strategic operations. For example, although the analyst knows that higher prices positively contributed to April’s results, the analyst does not know whether prices were higher because rates increased or because more acute surgeries were performed. Likewise, the efficiency variance could have been caused by overstaffing or by a justifiable reason. The manager’s job is to ask further questions to identify the underlying cause.

Static Versus Flexible Budgets To evaluate compliance to budgets, organizations can use either static or flexible budgets. A static budget, as illustrated in the previous example, is less sophis- ticated because budget projections are based on a single, fixed level of volume and activity. A flexible budget, on the other hand, is one that can be adjusted

Static budget A budget that is based on forecasted volumes and does not change when the volume of activity deviates from the forecast.

Flexible budget A budget that changes according to actual (not forecasted) activity volumes.

Budget Actual Variance

Volume (surgeries) 2,000 1,000 (1,000)

Revenues/unit $500,000 ÷ 2,000 = $250

$350,000 ÷ 1,000 = $350


Expenses/unit $350,000 ÷ 2,000 = $175

$340,000 ÷ 1,000 = $340


Income (loss)/unit $75 $10 $(65)

EXHIBIT 15.9 Surgical Center

Project Actual Variances per

Unit, April 20XX

Volume variance (1,000 – 2,000) × $250 = $(250,000)

Price variance ($350 – $250) × 1,000 = $100,000

Efficiency variance ($175 – $340) × 1,000 = $(165,000)

EXHIBIT 15.10 Surgical Center Project Volume,

Price, and Effi- ciency Variances,

April 20XX

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Chapter 15: Implementing, Monitor ing, and Evaluat ing Strategy 357

according to changes in volume and costs. The flexible budget approach is more useful than the static budget approach because it considers volume changes in the presented budget; actual price and efficiency changes can be more easily examined.

Chapter Summary

The implementation of strategy can be a difficult, time-consuming effort. Many strategic plans and changes fail substantially because of a lack of appro- priate implementation and monitoring structures and processes. Successful implementation requires the involvement of an organization’s governing body, executives, and key stakeholders as well as integration of the organization’s strategic planning, budget, and monitoring processes. Strategy is more than an event—it is an integral part of an organization’s ongoing operations.

An organization’s CEO is probably not the best person to be in charge of the day-to-day strategic planning process. An executive with requisite planning skills who can facilitate and coordinate divergent opinions is a better choice for this role. This person may be in charge of other duties as well, including business development, marketing, public relations, change management, and project management, depending on the size of the organization and other factors.

The governing board’s primary role in strategic planning is to approve the organization’s mission, vision, goals, strategic direction, and strategic plan document. The governing board also is responsible for periodically monitoring implemented strategies’ status and appointing and coordinating subcommittees (other than the strategic planning committee) as needed to address problems.

Many organizations expand stakeholders’ involvement in the planning process by establishing different stakeholder committees, which report to the governing board. Stakeholder committees may have diverse functions but, like other appointed subcommittees, generally monitor progress toward strategic objectives. In clinical organizations, medical staffs are also key stakeholders and must be appropriately involved in the strategic planning process. Many orga- nizations hire consultants to develop at least a portion of their strategic plan.

Organizations should monitor strategic efforts regularly. Specific metrics or key performance indicators (KPIs) should be established for each objective to ensure that the organization is progressing in the right direction, fulfilling its mission, and meeting the needs of key stakeholders. Monitoring is an ongo- ing learning process that drives positive change to achieve an organization’s mission and vision more fully.

One tool many companies use to monitor strategy is the balanced score- card. The balanced scorecard incorporates multiple measures that can be exam- ined simultaneously and thus provides a more comprehensive view of an orga- nization’s progress. Scorecards may include a number of outcome measures, including financial, customer and stakeholder, internal business processes, and

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Strategic Healthcare Management358

learning and growth. Healthcare organizations have adapted these dimensions to include quality and access measures.

Budgets are another key component of strategy. Organizations establish budgets on the basis of their strategies. Strategic projects are prioritized, and resources are allocated accordingly. An organization should monitor a proj- ect’s progress and direction by analyzing its adherence to its projected budget. Variances from the budget help managers understand the factors affecting achievement of the project’s objective.

Strategy is developed and implemented in many different ways, depend- ing on organizations’ culture, preferences, bylaws, and mission. However, common to all successful strategic efforts are people, structures, and controls that translate concepts into direction and organizational action.

Chapter Questions

1. How should budgeting reflect strategic planning? 2. What occurs when strategic planning is an event rather than a process? 3. In what role should an organization’s CEO serve during the strategic

planning process? 4. What might influence the roles and titles of the person in charge of

strategic planning? 5. What are the key roles of the governing board in strategic planning? 6. When should an organization create a separate strategic planning

committee? 7. What are the advantages of using consultants for strategic planning?

What challenges does the use of consultants present? 8. What is a KPI, and how should it be developed? 9. Why is monitoring critical to strategic implementation?

10. What is the difference between a balanced scorecard and traditional goal metrics?

11. How should a capital budget reflect strategic priorities? 12. How can budget variances be used to monitor implementation of strategy?

Chapter Cases

Case Studies Read “The Struggle of a Safety Net Hospital,” “The Battle in Boise,” or “Bozeman Health’s Competitive Dilemma” in the Case Studies section at the end of this book and answer the questions at the end of the case.

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Chapter 15: Implementing, Monitor ing, and Evaluat ing Strategy 359

Chapter Assignment

Read the 2003 article by W. Zelman, G. Pink, and C. Mathias titled “Use of the Balanced Scorecard in Health Care” from the Journal of Health Care Finance, volume 29, issue 4, pages 1–16. Write a two-page paper on the effective use and misuse of this tool.

Managing with Budget Variances Ruth was the chief nursing officer of a midsized hospital in a southwestern community. The hospital had experienced a number of very difficult years and had gradually lost market share to some of the newest market entrants. In its latest strategic plan, achieving competitive efficiencies had become a key priority. To accomplish this aim, the hospital would need to cut 10 percent of its costs. Because she managed the largest portion of hospital person- nel, she was asked to defend the recent actual results against the budget, specifically for salary and related costs. She received the following data:

Budgeted Actual

Adjusted Patient Days 210,000 178,000

Net Revenues $52,000,000 $ 51,285,000

Salary Costs $22,000,000 $ 19,435,000

Other $ 2,350,000 $ 1,650,000

Total Costs $24,350,000 $ 21,085,000

Contribution Margin $27,650,000 $30,200,000

Analyze the data using volume, price, and efficiency variance.

Questions 1. Did Ruth’s hospital achieve its 10 percent reduction in salary costs? 2. What effects did volume, price, and efficiency have on the

outcomes? 3. What would you present to justify the financial results?

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