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CHAPTER 1
LEADERSHIP, MISSION, VISION, AND CULTURE: THE FOUNDATION FOR STRATEGIC PLANNING
Leadership is the capacity to translate vision into reality.
— Warren Bennis
Innovation distinguishes between a leader and a follower.
— Steve Jobs
Learning Objectives
After you have studied this chapter, you should be able to
* develop an understanding of the healthcare system and its organizational complexity, including the role of healthcare leaders as they make decisions and formulate strategy;
* understand the importance of board and medical staff leadership;
* understand the role and importance of organizational structure and governance;
* discuss complex issues in the healthcare industry from the perspective of previous leadership literature;
* apply leadership and managerial principles to organizational and systemwide problems in healthcare;
* understand the importance of an organization's mission, vision, and values in healthcare strategic planning;
* discuss leadership's role in developing an organizational culture of ethics and professionalism; and
* compare systems and techniques to measure an organization's own performance and the performance of other organizations.
Key Terms and Concepts
* Board of directors
* Chief executive officer
* Chief financial officer
* Chief information officer
* Chief medical officer
* Chief nursing officer
* Credentialing
* Culture
* Fiduciary
* For-profit hospital
* Goals
* Health information technology
* Incentive
* Infrastructure
* Internal data
* Joint venture
* Leadership
* Magnet hospital designation
* Medical staff
* Mission
* Not-for-profit hospital
* Organizational culture
* Senior marketing executive
* Servant leadership
* Stakeholder
* Systems approach
* Values
* Vision
Introduction
Healthcare spending in the United States reached $2.9 trillion in 2013 (CMS 2014). This figure was up from $2.1 trillion in 2006 — a 38 percent increase (Catlin et al. 2008). It represents an expenditure of $7,026 per person in 2006, climbing to $9,255 per person in 2013. As a percentage of the US economy, healthcare spending was 16 percent of the gross domestic product (GDP) in 2006 and 17.4 percent of the GDP in 2013. During 2013, the largest component of healthcare expenditures was hospital care, which increased 4.3 percent from the prior year, to $936.9 billion. The second largest component was physician services, which in 2013 increased 3.8 percent to $586.7 billion. The third largest component was prescription drugs — $271.1 billion in 2013. Nursing care facilities ranked fourth at $155.8 billion.
Healthcare costs are increasing at a significant rate, and the industry needs leaders who can allocate resources more efficiently. Research shows that, taken as a group, hospitals are one of the largest employers in the country, and they are critical to attracting new business to a geographic area. Healthcare also contributes to the United States' economic and social well-being; 18.5 million Americans were employed in healthcare in 2015 (BLS 2015). The US hospital industry comprises a wide range of hospitals of varying size (see Exhibits 1.1 and 1.2).
Organizations, like people, have personalities. This personality develops over time and is shaped by the organization's history, the environment in which it operates, and the beliefs of its key individuals. These factors are reflected in the organization's mission, vision, and culture.
The healthcare field changes constantly. As a result, healthcare organizations, like individuals, must continually adapt to survive and prosper. They must develop a culture that supports change and periodically evaluate their mission, vision, and values to make sure they are relevant in the current environment. This evaluation provides a foundation for the strategic planning process.
Growth is important to an organization's future success. It helps the organization recruit physicians and provides greater economies of scale (see Highlight 1.1), which can result in increased profitability. To grow, organizations need effective infrastructures, highperformance work processes, and skilled personnel, and they must provide their employees with appropriate incentives. Most important to growth is good strategy development, which is a product of excellent leadership and diversity of individuals and expertise. Strategic planning is an effective way for organizations to improve their allocation of resources (see Highlight 1.2). Resources need to be allocated in a way that allows organizations to provide healthcare services as efficiently as possible. Research has shown that the efficient allocation of healthcare resources in the production process is linked to improved quality (Vigen, Duncan, and Coughlin 2013). The following section discusses the role of hospital leaders, particularly their function in strategic planning.
Infrastructure
Underlying foundation or basic framework.
Incentive
Reward that motivates someone to take action or perform, such as a bonus payment awarded for achieving a goal.
Definition of Leadership
At the most basic level, leadership is the ability to guide, influence, and inspire individuals to meet goals (for the purposes of this book, organizational goals). Competency models that focus on leadership in the healthcare environment have been developed by many organizations, including the Healthcare Leadership Alliance (HLA) and the National Center for Healthcare Leadership (NCHL; see Highlight 1.3). Based on the most current research, these models identify behaviors and technical skills (competencies) that characterize outstanding leadership performance.
In the rapidly changing healthcare environment, strategic planning is becoming increasingly important to overall organizational success. Strategic planning involves the development of organizational objectives (i.e., what the organization wants to accomplish), the management of action plans, and the measurement of ongoing performance. An important part of strategic planning is the development of relationships with stakeholders, which include the board of directors, the leadership team, hospital staff, physicians, patients, local employers, insurers, community groups, and government agencies.
In healthcare organizations, the board of directors and the chief executive officer (CEO) are at the top of the leadership structure. The board of directors is the governing body appointed to hold fiduciary responsibility for the organization. (Piedmont Healthcare's board of directors is illustrated in Exhibit 1.3. Piedmont Healthcare is a large, not-for-profit health system based in Atlanta, Georgia.) As part of this responsibility, the board makes policy decisions, which guide the future of the organization. An essential area of the board of directors' responsibility is the development of a strategic plan consistent with the organization's mission and vision.
Many believe that an organizational culture that embraces continuous quality improvement (CQI; see Highlight 1.4) is necessary for long-term success and that the board of directors should focus on measuring performance to ensure healthcare quality. The Institute of Medicine (IOM; see Highlight 1.5) believes that improving healthcare will require changes to the structure and processes of the delivery system as well as a focus on coordination of care across all services. In addition, successful delivery of healthcare in the future will depend on the use of health information technology, such as electronic health records.
The CEO is the highest-ranking executive in an organization and is responsible for strategic planning, hiring senior leadership, and managing operations. The CEO is often a member of the board of directors and is an important interface between the board and operations. The CEO also represents the organization to key stakeholders, including regulatory authorities and community groups. A competent CEO emphasizes organizational transformation by envisioning, energizing, and fostering change. Analytical and innovative thinking, a community orientation, and strategic planning are essential to this focus. At the execution level, CEOs must demonstrate an ability to communicate, manage change, influence staff, and measure performance. They also need to possess excellent people skills; they must build relationships, uphold professional ethics, develop talent, and lead teams. Most important, CEOs should focus on organizational values, direction, and performance expectations.
Leadership
Ability to guide, influence, and inspire individuals to meet organizational goals.
Stakeholder
One who is involved in or affected by an organization's actions.
Board of directors
Governing body appointed to hold fiduciary responsibility for the organization.
Chief executive officer (CEO)
Highest-ranking executive in an organization, responsible for strategic planning, hiring senior leadership, and managing operations.
Fiduciary
An individual or a group who acts for and on behalf of another in a relationship of trust and confidence.
Health information technology
Information and communication technology in healthcare, such as electronic health records, clinical alerts and reminders, and decision support systems.
The Board of Directors' Role in Strategic Planning
Hospitals with a high-functioning board of directors perform better and are more profitable (Collum et al. 2014). In particular, outstanding hospital boards are composed of external members who are committed to the strategic planning process. Also important is the board's relationship to the community. A collaborative, community-oriented board stays in touch with the needs of the local population and develops new services to meet those needs. Such services can improve the health and well-being of the community as well as enhance the reputation of the healthcare organization.
Board participation in the strategic planning process helps build consensus among senior leadership and staff about the organization's future direction. Board members' involvement in subcommittees, board meetings, and strategic planning retreats can all increase the board's participation in strategic planning.
CEO succession is one of the board's most important responsibilities (Bowen 2014). Leadership development should be based on future needs of the organization as identified through the strategic planning process. Because the board plays an integral part in the strategic planning process and in defining the organization's mission, logic dictates that it be involved in leadership development to ensure future success. Additionally, the board should evaluate leadership's recommendations for new service lines (see Highlight 1.6) and monitor the quality of care provided by the organization.
The CEO's Role in Strategic Planning
A senior leadership team is an important asset to an organization and can give it a competitive advantage in the marketplace. High-performing senior leadership teams use formal management processes to improve efficiency and enhance quality. Research has found that these high-0performance work processes result in better value in healthcare services (Harrison and Meyer 2014).
In 2006, the CEO turnover rate among US hospitals was 16 percent, resulting in approximately 700 CEO transitions annually (Cirillo 2006). However, the rate of hospital CEO turnover increased to 20 percent in 2013, which represented the highest rate of hospital CEO turnover since 1981 (Bowen 2014).
A competent CEO is critical to the future success of the organization, so the board should help a new CEO develop team-building skills and the financial knowledge necessary to support the strategic planning process. In addition to maximizing performance, effective team building ensures that everyone in the organization is on the same page and that transitions to new leadership are smooth. In 2015, the median compensation for a CEO in a freestanding hospital with total net revenue less than $250 million was $456,000 (ACHE 2015).
The CEO, in consultation with the board, is ultimately responsible for creating and implementing the strategic plan. The strategic planning process should also include physicians and other staff in the organization.
Other Key Leadership Roles
The Chief Financial Officer
The chief financial officer (CFO) is responsible for planning, organizing, and directing all financial activities, including budgeting, cost accounting, patient accounting, payer relations (see Highlight 1.7), and investing. The CFO normally reports directly to the CEO. In 2015, the median compensation for a CFO in a freestanding hospital with total net revenue less than $250 million was $309,000 (ACHE 2015).
The CFO is critical to the development of the strategic plan because of his responsibility for projecting workload and providing financial data. Key data include growth projections, market share, departmental budgets, and performance measures. Thus, the CFO needs to understand financial modeling (see Highlight 1.8). Gathering and providing accurate and timely information are often the most difficult parts of the strategic planning process. In a small hospital, the CFO also often functions as the project manager for strategic planning.
Chief financial officer (CFO)
Executive responsible for planning, organizing, and directing all financial activities.
Chief nursing officer (CNO)
Nurse executive responsible for planning, organizing, and directing all nursing activities.
The Chief Nursing Officer
The chief nursing officer (CNO) is responsible for planning, organizing, and directing all nursing activities, including policy development, implementation of nurse staffing models (see Highlight 1.9), and ongoing quality improvement efforts. The CNO normally reports to the CEO. In 2015, the median compensation for a CNO in a hospital with total net revenue less than $250 million was $200,000 (ACHE 2015).
Nursing leaders are important participants in the organization's decision-making processes and should be involved in strategic planning. They can provide a valuable perspective on resource allocation, the marketing of new services, and quality enhancement. In 2011, the American Hospital Association (AHA) surveyed more than 1,000 hospital boards and found that 6 percent of board members were nurses; 20 percent were physicians (Hassmiller and Combes 2012). According to the IOM (2011) Future of Nursing report, "Public, private, and governmental health care decision makers at every level should include representation from nursing on boards, on executive management teams, and in other key leadership positions." To achieve Magnet hospital designation, hospitals must document the nurse executive's role in the senior leadership decision-making process.
Magnet hospital designation
Status awarded by the American Nurses Credentialing Center to hospitals whose nursing staff meets certain criteria based on quality and professional practice.
The Chief Information Officer
The chief information officer (CIO) is responsible for planning, organizing, and directing all of the organization's information systems (e.g., enterprise information systems, clinical information systems, electronic health records) and often manages the organization's telecommunication systems. From a strategic planning perspective, the CIO has an important role in systems design and analysis. In some cases, the CIO reports to the CFO; however, the CIO may more appropriately report to the CEO. In 2015, the median compensation for a CIO in a hospital with total net revenue less than $250 million was $210,000 (ACHE 2015).
The CIO's role is critical because the strategic planning process hinges on the management of information and the use of information systems. Data collection is essential to strategy development and includes gathering both internal and external information. Sources of external data include peer-reviewed articles, professional associations, healthcare websites, databases, community surveys, patient focus groups, interviews with community leaders, and physicians. Internal data from leaders, staff, and internal databases are important because they highlight an organization's strengths and weaknesses.
Chief Information officer (CIO)
Executive responsible for planning, organizing, and directing all information systems in the organization.
Internal data
Information and facts that can be gathered from sources within an organization.
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Excerpted from "Essentials of Strategic Planning in Healthcare"
by .
Copyright © 2016 Foundation of the American College of Healthcare Executives.
Excerpted by permission of Health Administration Press.
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