Strategic Management of Healthcare Organizations: Mechanics of Performance Improvement

1. Strategic Management of Healthcare Organizations:Mechanics of Performance Improvement Laura Schmidt, PhD, MSW,MPH Professor, UCSF School of Medicine

2. What’s on the “right side” of the performance equation? • Organizational structure • Leadership and management processes • Strategy=making internal changes that meet the performance goals of the external environment

3. Defining Organizational Environments Environment supplies resources to organizations (money, people, power, legitimacy) Organizations must engage with their environments for resources to survive Orgs are “inescapably bound up with the conditions of their environment”

4. Organizations and EnvironmentsDefining Boundaries Blue Cross of CA City of SF CMA CPMC UCSFSOM Pacific Business Group on Health FEDS: NIH, CMS, FDA CNA

5. What Do Environments Do? Allow some organizations to survive… …but they must conform to the constraints of the environment to do so. They also stabilize organizations by providing regular resources and standard scripts and routines defining the “right way to business”

6. Responding to the Environment: An Imperfect Process • Monitoring key sources of money, power, legitimacy • Attending to cues from the environment • Gathering, selecting, screening, retaining information on the environment • Strategically conforming and influencing

7. Defining Strategic Change • Strategic change = making changes in internal and external relations to meet the performance goals of the organization • Strategic comfort zone= the extent to which the org can tolerate strategic reorientation • Effective strategic change: • Changes responding to key parts of environment • Changes that are responsive to turbulence versus stability in the environment

8. Deconstructing Strategic Change • WHO: Who are the strategic leaders? • WHAT: What is the content of the strategy change? • WHEN: How often, and how quickly, are strategic adaptations made? • WHERE: What parts of the environment does the strategic change respond to? • WHY: Is the change designed to respond to institutional pressures or technical/task demands? • HOW: What is the strategic process by which change is being implemented?

9. How well does org meet environmental demands? Failure can lead to good strategy Strategic comfort zone Org anatomy impacts capacity Org slack Structural versus cyclical changes Strategic leaders Strategic capacity Ability to scan & interpret environment Entry and exit barriers “First mover” advantage

10. PERFORMANCE • How effective is the organization in meeting the demands of environment?* • Success usually does not spell change • Past failures are a key trigger for change

11. Standards of Performance

12. PERFORMANCE • How effective is the organization in meeting the demands of environment?* • Success usually does not spell change • Past failures are a key trigger for change

13. ENVIRONMENT • Structural versus cyclical changes • Structural change often requires major organizational realignment • Which parts of the environment are most critical to survival of the organization? Institutional or technical/task environments?

14. MANAGEMENT • Who is defining strategic content and who is implementing it? • How do they scan, perceive and interpret the environment? • What is their capacity to bring about organizational change?

15. MARKET • Barriers to entry and exit • Barriers are influenced by environmental change • Capacity for competitive advantage and “first mover” advantage

16. ORGANIZATION • What is the organization’s strategic comfort zone? • How do the organization’s structure, culture and power structure impact the capacity for strategic change? • How much slack is there in the organization to make change possible?

17. How well does org meet environmental demands? Failure can lead to good strategy Strategic comfort zone Org anatomy impacts capacity Org slack Structural versus cyclical changes Strategic leaders Strategic capacity Ability to scan & interpret environment Entry and exit barriers “First mover” advantage

18. A caveat:Environments matter Humans are generally biased towards attributing causality to the actions of individuals within organizations Feelings of control reinforce the cognitive bias After a success, we tend to attribute causality to human behavior; if it’s a failure, it was the environment This may lead to spurious associations in research on healthcare performance

19. The External Problem for Healthcare Organizations • They operate in highly “institutionalized environments” (lots of rules, values, assumptions about what’s “good performance”) • Sometimes conforming to all these rules makes it harder to just get the job done • Appearing effective makes it harder to actually be efficient

20. How Do Orgs Solve this Problem? • DECOUPLING: The organization separates what it really does on a day-to-day basis from what it appears to do from the outside • CREATES GOOD FAITH: The organization engages in ceremonies and creates myths that allow others to overlook this

21. Consequences of Decoupling • Organizations operate by “two sets of rules:” the official ones and the real ones • Activities must be performed beyond the purview of managers • Goals become ambiguous or vacuous (e.g., hospitals treat, not cure, patients) • Decoupling makes it hard to integrate divisions and subunits (result=“organized anarchy”) • Human relations become the main way to coordinate things and solve problems