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An Exploratory Study of
Healthcare Strategic Planning
in Two Metropolitan Areas
James W. Begun, Ph.D., James A. Hamilton Term Professor, Division of Health
Services Research and Policy, University of Minnesota-Twin Cities, Minnesota, and
Amer A. Kaissi, Ph.D., assistant professor. Department of Health Care Administration,
Trinity University, San Antonio, Texas
E X E C U T I V E
S U M M A R Y
Little is known about empirical variation in the extent to which healthcare organizations conduct formal strategic planning or the extent to which strategic planning
affects performance. Structural contingency and complexity science theory offer
differing interpretations of the value of strategic planning. Structural contingency
theory emphasizes adaptation to achieve organizational fit with a changing environment and views strategic planning as a way to chart the organization’s path.
Complexity science argues that planning is largely futile in changing environments.
Interviews of leaders in 20 healthcare organizations in the metropolitan areas
of Minneapolis/St. Paul, Minnesota, and San Antonio, Texas, reveal that strategic
planning is a common and valued function in healthcare organizations. Respondents emphasized the need to continuously update strategic plans, involve
physicians and the governing board, and integrate strategic plans with other organizational plans. Most leaders expressed that strategic planning contributes to organizational focus, fosters stakeholder participation and commitment, and leads to
achievement of strategic goals. Because the widespread belief in strategic planning
is based largely on experience, intuition, and faith, we present recommendations
for developing an evidence base for healthcare strategic planning.
For more information on the concepts in this article, please contaa Dr. Begun at begunOOl®
umn.edu. To purchase an electronic reprint of this article, go to wvkfw.ache.org/pubs/jhmsub.
cfm, scroll down to the bottom of the page, and click on the purchase link.
264
HEALTHCARE STRATEGIC PLANNING IN TWO METROPOLITAN AREAS
S
trategic planning is commonly
believed to be important
to the effective functioning of
organizations, including healthcare
organizations. Strategic planning
typically is taught in graduate health
administration curricula, often within
courses in general management,
operations management, strategic
management, strategy, or marketing.
New developments, particularly in
strategic planning methodologies and
tools, are presented at professional
association meetings and other
executive education settings.
Anecdotally, there is wide variation
in how healthcare organizations
plan strategically. Some integrate
the strategic planning fijnction
with marketing, others assign the
responsibility to a planner, and others
diffuse responsibility for strategic
planning among the whole top
management team. There is little
standardization in the way that
healthcare organizations do their
planning, and it is unclear whether
strategic planning leads to advantages
in performance or in the marketplace.
As with many management practices,
evidence of the effectiveness or value
of strategic planning is lacking (Kovner,
Elton, and Billings 2000).
We conducted interviews with
20 healthcare organization leaders in
two different metropolitan areas to
determine (1) if and how strategic
planning is performed and (2) the
perceived impact of planning on
performance. Our purpose is to give
richer insight into the state of strategic
planning in healthcare organizations
and the perceived consequences of
strategic planning in two market areas.
We then present recommendations for
more systematic study in representative
national settings to advance the
evidence base for healthcare strategic
planning.
BACKGROUND LITERATURE
The traditional, rational management
model proposes that planning will
improve organizational outcomes.
Organizations face considerable
uncertainty in their environments.
To minimize uncertainty, organizations
seek to “know” their environments
through scanning activities; to reduce
future uncertainty, they project
expected environmental changes
and design desired futures. Strategic
planning increases the likelihood that
the organization’s structure, strategy,
culture, and other key choices will fit
together and fit within the emerging
environment (Begun and Kaissi 2004;
Donaldson 2001; Ellis, Almor, and
Shenkar 2002).
The healthcare practice and trade
literature generally promulgates
the rational management model.
The Malcolm Baldrige Health Care
Criteria for Performance Excellence, for
example, include extensive guidelines
for strategic planning. The criteria
emphasize developing and measuring
objectives and linking objectives to
strategies (Baldrige National Quality
Program 2004). In addition to the
Baldrige model, ideal models of
the healthcare strategic planning
process are presented in healthcare
management textbooks (Begun and
Heatwole 2004; Cinter, Swayne, and
Duncan 2002; Criffith and White
265
JOURNAL OF HEALTHCARE MANAGEMENT 50:4
JULY/AUGUST
2002) and the practice literature
(Zuckerman 2005). An underlying
assumption of these models is that
systematizing the strategic planning
process will result in improved
organizational performance. Kaplan
and Norton (2004), with their strategy
mapping and balanced scorecard
systems, represent this perspective in
the contemporary general business
literature.
scant and is largely based on case
studies or small samples (e.g., Dubbs
2002; Lemak and Coodrick 2003;
Wells et al. 2004). Evidence on the
outcomes of strategic planning in
healthcare organizations is also scarce:
A comprehensive review of the research
literature found only three studies of
the relationship between performance
and strategic planning in hospitals
(Bruton, Oviatt, and Kalls-Bruton
1995). Those three studies produced
mixed results, as did another study of
strategic planning in rural hospitals
and nursing facilities (Smith, Piland,
and Funk 1992). Other evidence is
indirect because their research typically
assesses the effects of particular
strategies or organizational changes
but not the planning process itself (e.g.,
Mick et al. 1994; Trinh and O’Connor
2000, 2002).
Some researchers have presented
theoretical challenges to the rational
model. A formal strategic plan can
introduce bureaucracy in decisionmaking processes and inhibit an
organization’s ability and flexibility
to respond to quick changes in the
environment. Complexity science
theory argues that strategic planning
is not useful in complex adaptive
systems, including healthcare delivery
systems, where the dynamic unfolding
of the system is uncertain (Begun,
Zimmerman, and Dooley 2003).
Surprises are inevitable, and they
are not the result of ignorance
(McDaniel, Jordan, and Fleeman
2003). Adherence to a plan can
actually harm the organization,
which instead should be focusing
on learning and creativity in response
to surprise. Strategic action should
be emergent and improvisational
(Downs, Durant, and Carr 2003).
Another theoretical rationale for the
possibility that strategic planning
may not improve performance is that
healthcare organizations do not face
serious competitive threats, such that
one strategy is as good as the next one.
Empirical evidence on the extent
and variety of strategic planning is
2005
METHODS
In summer 2004, we completed
interviews with healthcare organization
leaders from ten organizations in the
San Antonio, Texas, metropolitan
area, and from ten organizations
in the Minneapolis/St. Paul (Twin
Cities), Minnesota, metropolitan area.
The organizations were hospitals
or corporate offices of healthcare
systems. We interviewed one leader
from each organization. Leaders
included executives at the vice
president, chief operating officer, or
chief executive officer (CEO) level.
The individuals were a convenience
sample of executives with connections
to either the Master of Health
Administration Program at the
University of Minnesota-Twin Cities
266
HEALTHCARE STRATEGIC PLANNING IN TWO METROPOLITAN AREAS
in Minnesota, or the Master in Health
Care Administration Program at Trinity
University in San Antonio.
In the San Antonio area, five of
the executives represented corporate
offices of healthcare systems, and five
were from hospitals that are parts of
a larger system (n=4) or independent
(n=l) hospitals. The ten respondents
represented governmental (n=l), forprofit (n=7), and not-for-profit (n=2)
organizations. Three of the five San
Antonio hospitals were small (fewer
than 150 beds) and two were large
(more than 400 beds). In the Twin
Cities, four respondents were from
the corporate offices of healthcare
systems, three from system member
hospitals, and three from independent
hospitals (two acute, one specialty).
The ten respondents represented
governmental (n=l) and not-forprofit (n=9) organizations. (For-profit
hospitals are illegal in Minnesota.)
Three of the six Twin Cities hospitals
were small (fewer than 150 beds),
and three were large (more than 400
beds). Confidentiality was promised
to the responding individuals and
organizations.
The interviews were semistructured
and lasted approximately one-and-onehalf hours. A printed interview guide
was used and included questions that
cover the meaning and importance of
strategic planning, selected details of
the planning process, and key strategies
and characteristics of the planning
environment (see Appendix A^). Notes
were taken during the interviews, or the
interviews were recorded.
267
Description of the Two
iVIetropoiitan Areas
The Twin Cities and San Antonio
healthcare markets share many
similarities, but they differ as well.
They both are large, urban markets. The
Twin Cities market is approximately
twice as large, with a population of 3
million, compared with 1.6 million
in the San Antonio metropolitan area.
The population in the Twin Cities is
wealthier (median household income
is $55,000, compared with $39,000
in San Antonio) and less diverse in
ethnicity. In San Antonio, 51 percent of
the residents are Hispanic, compared
with 3 percent in the Twin Cities,
where the largest U.S. Census minority
group is African American—at 5
percent (SRC 2004).
In the Twin Cities metropolitan
statistical area, 37 hospitals deliver
care, with 7,070 hospital beds, and 4
large systems encompass most of those
hospitals (American Hospital Directory
2004). All hospitals and systems are
governmental or not-for-profit.
In the San Antonio area, 34
hospitals with a total bed count of
7,292 deliver care. In contrast to
the Twin Cities, the San Antonio
metropolitan area is dominated by
for-profit healthcare organizations, and
the area has recently seen increased
competition as a result of the opening
of several “niche” hospitals. Of the
three major health systems in the
area, only one remains a not-for-profit
entity.
FINDINGS
Here, we review themes that emerged
in the interviews around four topic
JOURNAL OF HEALTHCARE MANAGEMENT 50:4
JULY/AUGUST 2 0 0 5
areas: (1) the meaning and importance
of strategic planning, (2) the existence
of a formal strategic plan, (3)
characteristics of the formal process
of strategic planning, and (4) the
perceived impact of strategic planning
on performance.
stated another. These strategic planning
proponents expressed that planning
is worthwhile because it allows the
organization to have a vision and to
know where it is going.
The exceptions to the strong
endorsement of the importance of
strategic planning came from two
leaders in Twin Cities hospitals. One
believed strongly that execution is
more important than strategy: “The
end game is choices, execution, action,
I don’t have a lot of time or mental
interest in the process. There is no
winning strategy.” The other respondent
stated that strategic planning is
not very important in his or her
organization: “maybe because we have
always been financially successfiil, have
a high market share, and don’t feel
threatened by anything except payers.”
Nevertheless, these two organizations
did have strategic plans.
Meaning and Importance of
Strategic Planning
We purposely did not define strategic
planning for the respondents; instead,
we asked them for their own definitions and found only vague consensus.
Some respondents stated that strategic
planning is “looking out to the
ftiture,” determining where the overall
healthcare environment is going, and
developing organizational responses.
This is similar to formal definitions of
strategic planning; for example, Ginter,
Swayne, and Duncan (2002, 14) state
that strategic planning is “the set of
organizational processes for identifying
the desired future of the organization
and developing decision guidelines.
The result of the strategic planning
process is a plan or strategy.” Other
respondents, however, viewed strategic
planning as matching community
needs to available services, “making
sure we remain competitive,” or assessing internal and external demands.
All but 2 of the 20 respondents
stated that strategic planning is vitally
important to their organizations:
Strategic planning is “obviously
and absolutely critical. It’s one of
the most significant processes in
the organization,” argued one Twin
Cities leader, “It’s critical… in an
environment of limited capital. You
need to plan to secure your future,”
Existence of a Formal Sfrategic Plan
All but 1 of the 20 respondents
reported having a formal written document that they refer to as a strategic
plan for their systems or hospitals. We
did not request copies of the strategic
plan, although several were offered.
Two of the formal strategic plans
offered voluntarily by respondents
carried the label “annual plan,” In
addition, many respondents used the
terms “annual plan” and “strategic
plan” interchangeably. This speaks to
the integration of long-term with shortterm plans, which is a goal of several
of the organizations, or to the rolling
nature of strategic plans. Respondents
often referred to budget plans, business
plans, and capital finance plans and
noted their efforts to coordinate the
268
HEALTHCARE STRATEGIC PLANNING IN TWO METROPOLITAN AREAS
content of those plans with the content
of the annual or strategic plan.
The one organization that did
not have a document referred to as
a strategic plan was an independent
hospital in the Twin Cities. The
hospital produces various plans related
to specific strategic activities, rather
than one integrated document.
Characteristics of Formai Strategic
Planning
As for the process of developing the
actual plan, the organizations shared
several similarities. For hospitals that
are part of a larger system, both topdown and bottom-up approaches were
used. All of the systems in the two
markets gave guidance to individual
hospital members on matters relating
to strategic planning. The work
generally started at the system level
with preparation of demographic and
market share data. These numbers
were then shared with the hospitals,
whose executives meet, generally for a
one-day retreat, and develop strategies
and goals based on the data. In more
extensively formalized processes, each
hospital department then set its own
goals within the hospital’s goals. The
departmental plans are rolled up,
and a strategic plan is developed and
presented to the system board.
have a high degree of autonomy for
developing their own plans and noted
varying degrees of constraint from
the corporate office. For example, one
leader reported “100 percent latitude,
unless I develop a plan that totally
opposes the system mission and plans.”
Although respondents noted that
hospital strategy should fall within
the bounds of system strategy, they
uniformly argued that each hospital
is unique in its own market and that
strategies need to be geared toward the
specific needs of each community.
Time horizon and frequency of planning.
The time horizon for planning varied
from one year to five years, with five
years the modal response in the Twin
Cities and four years in San Antonio.
Most healthcare organizations (18 of
20) in both markets were involved in
yearly strategic planning. Although
executives noted that strategic plans in
previous years were developed and sat
for three to five years, they claimed that
revisiting and revising the plan were
commonly becoming an annual event.
Most organizations have a rolling
plan that is constantly tweaked and
adjusted. Two of the organizations
go even further, reviewing their plan
every month. Whether this reflects a
recent trend of more frequent changes
in the environment or is an indicator
of the mixing of strategic and tactical
(operational) planning is not clear.
Leaders of all systems and hospital
members of systems reported that
individual hospital strategic plans
were undertaken within the context
of overall system strategic goals.
Respondents were asked to assess
the system level of centralization
of the strategic planning process if
they represented hospitals in systems.
All hospital respondents claimed to
Responsibility for strategic planning.
Independent hospitals assigned responsibility for strategic planning to
individuals at the vice president or
director level; in system hospitals, the
CEO and other members of the top
269
louRNAL OF HEALTHCARE MANAGEMENT 5 0 : 4 JULY/AUCUST 2 0 0 5
executive team were jointly responsible
for producing the plan. The systems
had one or more persons at the vice
president level who were assigned to
oversee strategic planning, except in the
case of one Twin Cities system, where
responsibility was centralized to the
CEO of the system.
In the Twin Cities, respondents
reported a range of 0.3 to 4.5 fulltime employees (FTEs) devoted to
strategic planning, with 0.3 the modal
and median response. Respondents in
San Antonio avoided giving a number
for the FTEs involved, except for one
system that reported that two FTEs were
devoted to its strategic planning.
Clinician involvement. Clinician involve-
ment, through a variety of formal and
informal means, was stated to be high
in the strategic planning activities of
all of the organizations that reported
doing strategic planning. Involvement
was heavier in organizations with large
numbers of employed physicians,
who attend executive retreats and
other management meetings. In one
organization with a large number of
employed physicians, for example,
three members of the eight-member
task force that prepared the strategic
plan are physicians. In all respondent
organizations, the plans were reviewed
by the executive committee of the
medical staff, the chief of staff, or
both. One hospital leader prepared
a separate plan for physicians that is
related to the overall strategic plan,
with strategies written in a language
that is easy to understand by physicians
such as “Let’s build the house” or “Let
me make your life easier.” Although
all respondents recognized the importance of having physician buy into
the strategic plan, two CEOs at large
systems acknowledged that their efforts
to communicate with physicians about
strategic priorities were not as strong as
they should be.
Consultant involvement. Some organiza-
tions used consultants as facilitators
who were able to manage the different
agendas in the planning retreat, while
respondents from other organizations
believed there was no need to involve
outside parties in any step of the process, stressing the need to own the
process. Eight organizations (four in
the Twin Cities, four in San Antonio)
used process consultants in conducting
strategic planning activities.
Governing board involvement. Coverning
board involvement in strategic planning varied widely. Most typically,
involvement was less up-front and
more post hoc than clinician involvement, with the governing board either
approving the plan or at least reviewing
it. In all cases, respondents stated that
the plan was processed in some manner by the board. Typically, the plan
was presented, discussed, changed, and
approved at an annual retreat of the
board. Only in two organizations (one
in the Twin Cities, one in San Antonio)
was the board very much involved in
plan development.
Perceived Effect of Strategic Planning
on Performance
Organizations are widely believed to
engage in formal strategic planning to
improve performance, but this relationship has not been well established.
270
HEALTHCARE STRATEGIC PLANNING IN TWO METROPOLITAN AREAS
Although v^e could not assess this
relationship in this study, we asked our
interviewees about the various measures they use to evaluate the success of
their strategic plans, as well as the perceived impact of the strategic planning
process. Several respondents referred to
their organizations’ balanced scorecard
measures of organizational performance as indicators of the effectiveness
of strategic planning. Some organizations did not have specific measures
directly tied to the plan, while others
mentioned market share, return on
investment, meeting community needs,
postaudits of business plans, or staying
within budget. Most of the respondents
also noted that the process has major
benefits other than selecting the “right”
strategies—it energizes employees and
partners (a “Hawthorne” effect as described by one respondent) and creates
a culture of forward movement, change,
and learning.
Overall, all respondents, except for
the two noted previously, expressed
optimism about the effect of strategic
planning on performance. None of
the respondents cited scientific or systematic research findings from sources
internal or external to the organization
to justify their involvement in strategic
planning. Rather, respondents conveyed
to us a feeling or intuition or faith
that strategic planning contributes to
a stronger organization and to positive
consequences for outcome measures.
D I S C U S S I O N AND
CONCLUSIONS
Whether its value has been proven
or not, strategic planning is alive and
well in healthcare organizations in the
two metropolitan areas we examined.
Strategic planning generally was viewed
as a key value-added function of leadership in healthcare organizations.
It generally was not farmed out to
consultants but rather owned by the
organization. Physicians were more or
less involved in the planning process,
and the plan was reviewed and/or
approved by the governing board.
Member hospitals in healthcare systems
worked with their system headquarters
to coordinate their hospital plans with
those of the system, and vice versa.
Several other overriding themes
emerged from our discussions with
healthcare executives. The respondents
repeatedly stressed the importance of
executing the developed plan; one
leader stated, “if I have a mediocre
plan and execute it well, I would be
better off than if I have a good plan
and never execute it.” To ensure that
the plan was executed, some organizations created action plans from
the strategic plan, and an accountable
manager was assigned for each action.
The importance and challenge of implementation is a recurrent theme in
the business literature (e.g., Bossidy,
Charan, and Burck 2002). Most of the
organizations stressed the importance
of having a “living strategic planning
document” that is used regularly and
does not “sit on the shelf and collect
dust.” The organizations that valued
strategic planning were motivated to
keep their plans current. The literature suggests a similar trend toward
making strategic planning an ongoing
process (Grobmeyer 2001; Zuckerman
2000).
Another issue relates to the relationship between strategy and operations and the delicate balance required
271
JOURNAL OF HEALTHCARE MANAGEMENT
50:4
between attending to current needs
while planning for the future. One
respondent summed it up by noting
that “you have to meet today’s needs
while looking at the horizon. But if
you just look at the horizon, you will
stumble today.”
We did note subtle differences
between responses from San Antonio
and the Twin Cities, perhaps reflecting
that the San Antonio market is more
competitive and is dominated by forprofit organizations. Respondents in
San Antonio were more reluctant to
volunteer strategic plans and were more
concerned about making plans public. The process of strategic planning,
however, did not differ in ways obvious
to us.
FUTURE RESEARCH
Here, we discuss key issues to stimulate
future research that will produce evidence of the conditions and processes
that render the most effective healthcare strategic planning.
The respondents did not share a
common definition of strategic planning or a strategic plan. Research
should recognize that plans come in
a variety of other forms—for example,
capital, operating, programmatic, business, long-term, annual—in addition
to strategic plans. Researchers should
be specific about what types of plans
are being investigated or should incorporate a wide range of plans in their
study, because many different types
of plans may be considered to have
strategic elements.
As we anticipated, the variation
in strategic planning processes would
benefit from more systematic research.
JULY/AUGUST
2005
particularly as those variations relate to
performance outcomes. Are the more
extensive and participative processes,
such as those recommended in the
traditional strategic planning literature
and the Baldrige criteria, justified by
performance outcomes? Process characteristics that could be measured and
tested include the size of the strategic
planning activity, including FTEs and
costs; level of formalization; degree of
centralization; and the extent of stakeholder participation. The relationship
between planning activities in individual units of systems and planning
activities in corporate offices or headquarters is another fruitful arena for
studying the planning process. Leaders
in all of the systems we visited, and
their individual hospital members,
struggled with the balance between
system control and individual member
organization autonomy.
Research into the outcomes of
strategic planning should consider the
consequences of planning for stakeholder commitment to the organization in addition to more traditional
measures of organizational performance such as market share, clinical
quality, and financial outcomes. Effects
on morale and culture are more synchronous with the planning activity
than effects on financial performance
and market share; thus, researchers
will need to consider chronological
differences in the impact of strategic
planning on different organizational
performance measures. Measurement
of performance should be broad in
scope, reflecting that much of strategic
planning may be more important to
272
HEALTHCARE STRATEGic PLANNING N T W O METROPOLiTAN AREAS
culture building and morale than to
strategy making.
Finally, a host of variables may
explain variation in the meaning, importance, and process of strategic planning. The stage of growth of healthcare systems affects their ability to
centralize and standardize the process
across member hospitals, with earlystage systems more likely to be low on
centralization and standardization. The
size of hospitals and systems also likely
affects their investment in strategic
planning, with larger organizations
possibly investing more in a formal
process. Strategic planning may be
taken more seriously and performed
with more urgency and with more
resources in more competitive markets.
In addition, studies of strategic planning in rural healthcare organizations
suggest that the intention and process
of the plan in rural areas differ from
those in urban settings (e.g., Lemak
and Goodrick 2003).
In conclusion, our interviews provided a selective profile of healthcare
system and hospital strategic planning
in the Twin Cities and San Antonio
metropolitan areas. Our research found
several differences in the process across
the sample organizations, but respondents overwhelmingly agreed that
strategic planning is a fundamental and
important process for hospitals and
healthcare systems. The question for
many organizations, therefore, as Zuckerman (2000, 27) suggests, ” . . . is not
whether healthcare strategic planning
is relevant anymore, but rather how to
conduct it so that it is useful for the
21st century.” Further research on the
process of strategic planning and exe-
273
cution of strategies and other outcomes
of the process will yield an evidence
base for applying this commonplace
management and leadership function
more optimally.
Note
1. To access the appendix, go to www.
ache.org/pubs/jhmsub.cfm and scroll
down.
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P RAC T
ONER
A P P L I C A T
Deborah L. Sweetland, FACHE, vice president, growth and business develo