The External Environment: Understanding is Only Half the Battle

September 18, 2008

How well does your leadership team understand the external healthcare environment? If you were to assign a letter grade, A-F, where would your leadership team rate?

Our experience is that senior teams generally score well on this exercise, around an A or A-minus. The top ranks of your organization are very likely up-to-speed on the latest changes affecting reimbursement, technology, accreditation, as well as actions and potential actions your competitors are taking.

However, what we often find is a wide gap between the C-suite and the rest of the organization. The senior team’s understanding of the external environment rates an A, but our deployment of this knowledge often rates far lower. This gap is a major contributor when organizations fall short of achieving their desired outcomes. After all, the goal isn’t to understand the environment; the goal is to apply this knowledge to execute your strategy and achieve your desired outcomes. Let me explain how this gap occurs and what you can do to close it.

While the senior leaders set the direction, the day to day decisions are made (or not made) far deeper within the organization. These decisions, and the time available to make them, often require an understanding of the external environment. Ask these questions about your own organization:

  • Do the people making the decisions know the external forces that will influence the outcome?
  • Do your leaders move as quickly and skillfully as needed?
  • Do your frontline employees align their actions to achieve the organization’s goals?
  • Is the medical staff engaged and aligned to achieve the organization’s goals?

A few years ago we began working with a large system in which leaders and medical staff had a healthy appetite for creating new buildings, adding new acute care beds, and acquiring the latest technology. The C-suite worked very hard, and through debt financing made significant commitments to replace buildings, increase inpatient and outpatient capacity, and implement the latest technology. I had the opportunity to participate in their leadership training, where I heard from some leaders who felt they were being micromanaged in expense reduction, position replacement and a number of other operational items. During a break I learned from their CFO that, because of their latest round of borrowing, they had very little capital access until the new projects showed increased revenue and efficiencies. They were also very tight on days cash on hand, putting their bond covenants at risk.

When we returned from the break the CFO and I repeated this discussion for the larger group of leaders. It turned out that very few had an understanding of how debt financing worked; what level of days cash on hand was needed; what would happen if the system fell below that level; or how the newly acquired debt impacted operations. After hearing this information, I asked the group whether they now had a better understanding of why the senior executives were managing the operations so closely. They agreed that this helped explain the leaders’ actions. The point is this: when the information improved, so did their understanding. Most importantly, so did their ability to make decisions and execute according to the plan. Today, this organization’s performance is much improved.

I find that the C-suite works very hard to choose the best strategy for the organization. When the desired results of that strategy aren’t achieved, very often it’s because the senior team does not sufficiently share their understanding of the external environment throughout the organization.

Just like the organization above, leaders, line staff, physicians and other stakeholders appreciate when senior leaders connect the dots between the external environment and their day to day actions. With this improved information, the entire organization is engaged to bring forward fresh ideas that are in line with the challenges and opportunities in the external environment. Taking time to share the environmental context leads to faster and better decision making, improved alignment and heightened accountability. The result is much improved execution of your strategic plan.

In my next blog I’ll dig deeper into one of the most significant external forces shaping healthcare today: the reimbursement changes from CMS that no longer reimburse for certain “never events.” If you want to broaden your organization-wide understanding of how the external environment will affect your operations, never events are a powerful topic to discuss.


4 Responses to “The External Environment: Understanding is Only Half the Battle”

  1. Quint: Thank you for bringing to light the dire need for C-Team communication around ‘change’ and market forces. The marketing director, or COO, or both, should be charged with the sort of communication messages you raise. The VP teams should even be given a power pt slide or two to present to their department directors who then should be accountable for department presentations. So, when BOTH local (dept)communication, AND CEO or COO communications (employee newsletter articles for example) are delivered to the hospital system the message heightens in effect.

  2. Jim Says:

    A great book in this topic realm is Skin in the Game by McKesson head John Hammergren.

  3. Tom Hanson Says:

    Our newly integrated(3 years)health system just formed a Strategy/Operations team. We are facing the struggles most integrated systems face. Fresh from our bridge collapse here in Minnesota we used that event as a metaphor for our work.

    When the bridge was originally built it likely was of perfect design to meet the capacity of that time. Then on that fateful day there was tremendous weight on the bridge due to repairs…then came rush hour. The load on the bridge exceeded the design requirements of it’s time.

    Prior to integration, the infrastructure of the two seperate entities was likely of perfect design. Then came the integration and the bridge (system) got really heavy, now we’re recruiting 20 additional providers this year. It is now time for us to do a bridge inspection…leadership has to engage the true ‘operators’ of the company as to how those supporting structures, beams, plates look. Do we have the proper infrastructure to support the demands of todys traffic? What pillars need to be ‘shored up’, which ones are in need of replacement?

    It has been a helpful discussion between those in design and those in operations in attempts to avert an avoidable collapse.

    Hope this has been helpful.

  4. Cathy Wells Says:

    I am a middle manager who is in the category “the rest of the organization”. Maybe Quint could write a book “The External Environment 101”. Seriously, is there a book/course that your organization could recommend to help clinical managers understand the complex healthcare “external environment”?
    Thanks for your help,
    Cathy Wells

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