The late management theorist Peter Drucker famously described hospitals as “the most complex human organization ever devised.” The challenges that hospitals and health systems currently face are amplifying this complexity, from uncertainty about potential changes to federal healthcare policy—including Medicaid and NIH funding cuts and tariffs—inflation, and ongoing workforce challenges.
Identifying and executing a focused and deliberate strategy to navigate these complicated waters is essential for long-term success. All too often, though, organizations and their leaders get mired in operational, tactical, and administrative details as their planning efforts unfold—and fail to ask the questions that can shed insight on their biggest challenges and chart their future strategic direction.
A successful strategy requires leaders to make cohesive choices that will help shape their organization’s future direction and is shaped by both internal and external factors. Internally, an organization’s financial wherewithal helps determine which strategic options are available, while external market dynamics reveal and shape the competitive outlook and community needs. Together, these two dimensions set the parameters for asking and answering key strategic questions.
Understanding an organization’s strategic cohort
In our view, an organization’s strategic outlook is best understood in context of the relative volatility or maturity of their market, and their relative financial position. Depending on how hospitals and health systems are situated in terms of both their market and financial performance, we are observing organizations fall into one of four broad strategic cohorts, each of which poses a unique set of strategic questions (Figure 1).
Figure 1: Strategic Cohorts
Our observations of these cohorts are intended to help organizations identify where they stand in comparison to their peers and help uncover key strategy questions.
Precarious players are marked by instability and high-risk, which intensifies the urgency for these organizations to identify and execute new strategies to guide the organization to a firmer footing. These options might include high-risk, high-reward capital investments that propel change in a volatile market. Alternatively, precarious players may seek partnerships to address organizational limitations or provide a safe harbor from the rough waters.
Storm runners are currently thriving in turbulent conditions, and it is often evident that they are “winning” in their local markets. Strong operating performance coupled with balance sheet strength provides significant strategic flexibility. However, market volatility may eliminate some options as competing organizations make strategic choices of their own. Storm runners are poised to press their advantage through market expansion, consolidation, and a wide range of growth initiatives, but must be prepared for potentially disruptive moves by their more challenged competitors.
Market expansionists are performing well in core geographies and have often created an essential market position and a seemingly insurmountable competitive advantage. These organizations have a wide array of growth opportunities—which are often dependent on entering a new geography. These organizations are poised to develop or extend regional care networks and solidify their portfolio of services through investment in new technologies and service offerings. Market expansionists are perhaps best positioned to be aggressive in realizing their strategic goals.
Resilient rebuilders must address their operational foundation and performance to ensure future sustainability. These organizations often have historic, long-term ties to their core markets, but without the financial wherewithal or market position to aggressively pursue growth initiatives. Resilient rebuilders’ most immediate strategic priority is improving their financial trajectory through labor and non-labor performance improvement activities, clinical documentation improvement initiatives, and reviewing portfolios to identify and potentially sell or partner on non-core assets.
Closing thoughts
The cohorts described in this article are intended to shed light on where healthcare organizations stand within both their individual markets and in the context of their national competition. From there, an organization’s relative positioning can inform the key strategic questions to help inform planning efforts.
Importantly, treading water is not a sustainable approach.
The risk of waiting too long to identify and execute strategic imperatives is high—especially as other market players consider and pursue their own strategic directions.
