THE BUSINESS Strategic Management of H Strategic Management Collection A EXPERT PRESS R Healthcare Organizations R William Q. Judge, Editor DIGITAL LIBRARIES I S A Stakeholder Management Approach O N EBOOKS FOR BUSINESS STUDENTS Harrison • Thompson • T H Curriculum-oriented, born- Few industries are buffeted from as many strong forces as O digital books for advanced healthcare. The industry is highly regulated, thus d ramatically M Strategic business students, written increasing costs and sometimes even interfering with the a bility P S by academic thought to deliver healthcare. New drugs, treatments, and m edical O N leaders who translate real- technologies are so common that keeping track of them can Management world business experience be overwhelming, and incorporating them into patient care or into course readings and administration can be costly and complicated. reference materials for This book lays a stakeholder foundation for managing a students expecting to tackle healthcare organization strategically. It contains s tep-by-step of Healthcare management and leadership tactics as well as examples of HCOs that are having success challenges during their with various aspects of the stakeholder approach in their professional careers. organizations. As any experienced healthcare executive knows, Organizations making changes to a healthcare delivery system is like trying to S POLICIES BUILT T modify an aircraft while it is in flight. The process is c omplicated R BY LIBRARIANS A and the consequences of mistakes can quickly lead to disaster. T • Unlimited simultaneous With this book, you’ll get a new approach to managing healthcare EG A Stakeholder usage within your organization, an approach that will unlock i nnovation IC • Unrestricted downloading and create more value for a broad group of industry participants. M and printing AN Management Approach • Perpetual access for a Jeffrey S. Harrison holds the W. David Robbins Chair in strategic A G one-time fee management at the University of Richmond. His PhD in s trategic E • No platform or management is from the University of Utah, as is his MBA, and M E maintenance fees his previous appointment was at Cornell University. During his N T • Free MARC records 30 years in academia, Jeff has consulted or provided e xecutive O • No license to execute training to dozens of companies in numerous industries, F H The Digital Libraries are a including Fortune 500 companies. He has written numerous books E A Jeffrey S. Harrison on strategic management and stakeholder theory and serves on comprehensive, cost-effective L T way to deliver practical the editorial review board of Strategic Management Journal. H C Steven M. Thompson treatments of important Steven M. Thompson is an associate professor of m anagement in A R business issues to every the Robins School of Business at the University of R ichmond. Steve E O student and faculty member. received his PhD in operations and information m anagement R G from the University of Connecticut. His MBA and BS are also from A the University of Connecticut. In addition to publishing in premier N I Z management and technology journals, Steve has designed, A For further information, a developed, and implemented technology-based solutions to TI O free trial, or to order, contact:  help clients in the healthcare industry solve a variety of service N S delivery problems and decision-making problems. [email protected] www.businessexpertpress.com/librarians Strategic Management Collection William Q. Judge, Editor ISBN: 978-1-60649-772-2 Strategic Management of Healthcare Organizations Strategic Management of Healthcare Organizations A Stakeholder Management Approach Jeffrey S. Harrison and Steven M. Thompson Strategic Management of Healthcare Organizations: A Stakeholder Management Approach Copyright © Business Expert Press, LLC, 2015. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means—electronic, mechanical, photocopy, recording, or any other except for brief quotations, not to exceed 400 words, without the prior permission of the publisher. First published in 2015 by Business Expert Press, LLC 222 East 46th Street, New York, NY 10017 www.businessexpertpress.com ISBN-13: 978-1-60649-772-2 (paperback) ISBN-13: 978-1-60649-773-9 (e-book) Business Expert Press Strategic Management Collection Collection ISSN: 2150-9611 (print) Collection ISSN: 2150-9646 (electronic) Cover and interior design by Exeter Premedia Services Private Ltd., Chennai, India First edition: 2015 10 9 8 7 6 5 4 3 2 1 Printed in the United States of America. Abstract Few industries are buffeted from as many strong forces as healthcare. The industry is highly regulated, thus dramatically increasing costs and sometimes even interfering with the ability to deliver healthcare. New drugs, treatments, and medical technologies are so common that keeping track of them can be overwhelming, and incorporating them into patient care or administration can be costly and complicated. On the social side, different groups have different opinions on any given topic and often the right thing to do depends on your point of view. Third party payers add another level of complexity, and competition adds yet another layer of difficulty as organizations seek to grow patient volume by positioning themselves as distinguished in terms of cost, quality, accessibility, and quality of patient experience. Dealing with these strong dynamic forces requires innovative solutions that address the needs of a large number of constituents, which we call stakeholders. However, as any experienced healthcare executive knows, making changes to a healthcare delivery system is like trying to modify an aircraft while it is in flight. The process is complicated and the conse- quences of mistakes can quickly lead to disaster. What is needed is a new approach to managing healthcare organizations, an approach that will unlock innovation and create more value for a broad group of industry participants. Fortunately, such an approach exists. Stakeholder theory was spe- cifically developed to help managers deal with complex environments characterized by high levels of uncertainty and change, as well as a high level of interdependence among participants. The principles upon which stakeholder theory is based lead organizations to develop cooperative and trusting relationships with their major stakeholders. These relationships are a source of innovative ideas, efficiency, and reciprocity manifested through high levels of motivation, loyalty, and ultimately the creation of more value in the organization’s system. This book lays a stakeholder foundation for managing a healthcare organization strategically. It contains step-by-step tactics as well as examples of HCOs that are having success with various aspects of the stakeholder approach in their organizations. vi ABSTRACT The book is especially suited to middle- and upper-level managers in healthcare organizations, as well as students of healthcare administration; however, anyone currently in the healthcare field will also find it useful. Keywords competitive advantage, efficiency, ethical management, healthcare, inno- vation, performance measurement, stakeholder management, stakeholder theory, strategic management Contents Preface ��������������������������������������������������������������������������������������������������ix Chapter 1 A Practical Approach to Strategic Management of Healthcare Organizations .............................................1 Chapter 2 Managing for Stakeholders .............................................13 Chapter 3 Strategic Direction ..........................................................27 Chapter 4 Analysis of the Organization and Its Stakeholders ...........39 Chapter 5 Analysis of the External Environment .............................57 Chapter 6 Strategic Factors and Performance Measures ...................73 Chapter 7 Strategic Alternative Generation and Evaluation .............85 Chapter 8 Implementation Planning and Execution ......................103 About the Authors �������������������������������������������������������������������������������117 Notes��������������������������������������������������������������������������������������������������119 References �������������������������������������������������������������������������������������������123 Index �������������������������������������������������������������������������������������������������127 Preface We wrote this book to help healthcare firms and their administrators successfully navigate what is one of the most challenging industries of this century. In addition to high levels of regulation, increasing costs, and a constant flow of new technologies and drugs, health care is morally and ethically complicated.1 Various groups such as patients, doctors, community leaders, nongovernmental organizations (NGOs), third party payers, and regulators have different opinions on any given topic, and finding a middle ground can be a challenging task. As the costliest health system in the world, health care organizations and the U.S. health care system in general make easy targets for politicians, NGOs, and the media. Given this challenging and complex environment, it is not surprising to find dissatisfaction among some industry participants. H ealthcare providers such as doctors often feel overwhelmed and dissatisfied. For example, a physician who left clinical practice describes “the stresses of practicing medicine in a health care system that often seemed blind to humanness, both mine and my patients.”2 Also, while the majority of patients may believe they are getting good care, others complain about high costs, long wait times, or the availability of particular types of care, whether as a result of scarcity, regulations, or third party payers unwilling to pay for them. On the positive side, in spite of inefficiency and other problems in the current system, the vast majority of those who provide the care, as well as those who administer the programs, are genuinely committed to what they do, and for the right reasons. Furthermore, they tend to be some of the brightest, best-trained workers. So why is the healthcare industry in so much trouble? We suggest that it is not lack of healthcare knowledge and training that is the primary source of problems, but rather lack of appropriate administrative training is the culprit. Many of the most popular business models that form the intellectual foundation of healthcare administration today are poorly suited to such a complex and turbulent environment. Many are built on the premise