The Case for Strategy in the Midst of Tumultuous Times

The Case for Strategy in the Midst of

Tumultuous TimesAngola Area Chamber of Commerce

13th Annual Luncheon and Expo

March 1, 2013

An Ominous Challenge!

The 13th Annual Luncheon and Expo

Held in 2013…Lucky or What?

A Lucky Catch!

The

Perfect

Diet!

“Strategy and the Uncertainty Excuse”Blog Post by Roger Martin

Dean of the Rotman School of Management,

University of Toronto, Canada

The Issue

When Asked About Their Company’s Strategy-Or Lack Of…

Many Business Leaders Say They Can’t or Won’t Do Strategy

Because Their Operating Environment is Changing So Much…

• “There isn’t enough certainty to be able to do strategy

effectively.”

• “Our business runs at breakneck speed. There isn’t time to

stop & do strategy. It will evolve over time.”

The Argument & Logic

The Argument:

The Present is Too Uncertain to Make Any Strategic Decisions

About the Future

The Logic:

At Some Future Time, Things Will be Certain Enough to Make

Choices

Problems With the Logic

• Life Will Always Be Uncertain

• Why Will It Be Any Different Next Week, Next Month…Next

Year?

• If Things Are Too Uncertain & Fast Changing Today, What

Is It About The Future That Will Make Things More Certain?

Problems With the Logic

• At Some Point, Do We Declare Things Are Now Clear

Enough to Make Choices?

• How Will We Know It’s the Right Day, Month…Year?

• What Criteria Will We Use to Decide It’s Certain Enough?

• OR…Do We Put Off Choosing Forever?

The Danger

• While We’re Using Uncertainty As An Excuse To Put Off

Making Strategic Choices…

The Competition May Be Doing Strategy & Making Choices…Our

Options May Narrow Or Disappear

The External Environment May Change…We Miss an Opportunity

Our Internal Environment May Change…We Miss an Opportunity

Just Maybe…Things Become Even Less Certain!!

When That Happens—What Do We Say?

We Complain…

”We Were Blindsided!”

“We Didn’t Have The Right Information!”

“It Was Too Late To Do Anything About It!”

“It Isn’t Our Fault…This Kind of Thing Just Happens!”

The Fact Is…

• All Of Our Businesses Have Strategy...

• Whether We Do or Don’t Pursue Strategies…

• Whether We Make or Postpone Decisions…

• Whether Actively or By Default…

• We Are Making Choices All The Time About Our Direction

“Would you tell me, please,

which way I ought to go from

here?”

“That depends a good deal on

where you want to get to.”

“I don’t much care where—”

“Then it doesn’t matter which

way you go.”

Lewis Carroll, Alice in Wonderland

The Reality Then…

If We’re UNWILLING to Make Decisions Based Upon The

Best Information In Hand; or

INCAPABLE of Making Strategic Choices In The Midst Of

Turbulent, Uncertain Times…

Then There Are A Couple Defaults That Work Equally Well…

“When you come to a fork

in the road, take it.”Yogi Berra

“If you don’t know where you’re going,

you might end up some place else.” Yogi Berra

The Cameron Experience-Case Studies

Physician Employment

Building Project Financing

Tagline and Guiding Statements


Background: More than 50% of practicing U.S. physicians are employed by

hospitals and health systems

Why? Declining Reimbursement

Increasing Malpractice Costs

Increasing Regulatory Burdens

Increasing Expense & Complexity to Operate a Practice

Increasing Expense & Complexity of Information Technology

Uncertainty of Health Care Reform


Background: Valuing Work-Life Balance & Given Burdens of Independent

Practice, Most Young Physicians Want Employment

Hospitals Lose $150,000-$250,000 Each Year Over the 1st Three

Years of Employing a Physician

Hospitals Are Assertively Hiring Physicians & Aggressively

Competing With Each Other


The Local Scene: 2009—Among 15 Community-Based Physicians, Only 1 Was

Employed…BUT…

Given Burdens of Independent Practice & Uncertainty of Health

Care Reform, Many Ready to Consider

CMCH Was Requested to Begin Employing Physicians


Strategy Uncertainties: With no experience & no expertise in employing physicians…Could

CMCH be successful?

With Lutheran and Parkview assertively hiring & aggressively competing

with each other…Could CMCH effectively compete?

Cost—Both of initial acquisition & ongoing expense…Could CMCH afford

and still have adequate financial resources for other strategies?

Timing—Could CMCH implement the strategy effectively & quickly

enough to successfully compete?

Weighing the Many Uncertainties—CMCH Decided NOT

to Employ Physicians


Right or Wrong Decision? Compelling argument can be made for both positions

The decision did, and continues to provide strategic direction for CMCH

High Probability That CMCH Employment of Physicians

Will Be Re-Visited

The Next Chapter: How Will We Respond to Emerging

Events & Uncertainty?


Background: Access to Capital a Major Concern & Priority for Hospitals of All

Sizes To Fund Program Development, Including Hiring & Retaining Talented

Staff

For Clinical Equipment

For Information Technology

For Facility Improvements & Replacement


Background: Financial Crisis of 2008 Changed Landscape for Traditional

Commercial Financing Many Traditional Commercial Lenders Severely Tightened Credit

Requirements, Limiting Risk Exposure to Large Hospitals & Health

Systems

Limited Financing Options Available to Independent & Small

Hospitals—When You’re Both the Challenges Even Greater!


Uncertainties for CMCH in Approaching Building Project

Financing: Traditional Commercial Lenders Took a Pass on the CMCH Project

What Unique Financing Methods Might Be Available?

Would CMCH’s Debt Capacity be Sufficient for Project Financing?

Might CMCH, Like Many Independent & Small Hospitals, Need to

Consider Alignment With a Health System to Gain Access to Capital for

the Project?


CMCH’s Strategic Decisions:

1) Acquiring Financing Ourselves Vital to CMCH’s Continued

Success as an Independent Hospital

2) Apply for Financing Through USDA Rural Development

Community Facilities Program Central to USDA’s Program—Promoting success & vitality of rural

communities—including rural hospitals—exactly like Cameron


However…Many Uncertainties With Decision: Would the USDA Program be adequately funded via the Federal

Budget?

How would the CMCH application stack up vs. other projects

competing for USDA dollars?

How long would the USDA application process take?

If USDA financing fell through, what would be the back up option?


The USDA Application Process…A Long & Torturous Path 12/2010—USDA Financing Application Submitted

4/2011—With Uncertainty of USDA Financing, 1st Step of Back Up Plan

Pursued—Alternate Funding Available from HUD FHA 242 Program—With

It’s Own Set of Unknowns:

Would they be interested in the CMCH project?

What scope, cost & other project controls would they impose?

USDA Review—From Start to Finish, A Road With Many Detours

Need for response to many, many USDA information requests

Advocacy from Congressman Marlin Stutzman of great assistance


Additional Uncertainties as USDA Approval Process

Dragged On: Would interest rates rise, adding significant cost to project?

Would the favorable environment for competitive bids from

subcontractors disappear?

Given the delay, would CMCH be able to retain the participation of

key members of the construction team?

Would the delay negatively impact the MOB development?


Some Began to Question if CMCH Could Get the Project Done—

“Just let one of the health systems build the new hospital for you.”

Yet…With determined effort…patient perseverance & unflagging

optimism…CMCH Remained Committed to the USDA Financing

Strategy

July 10, 2012—Almost 18 Months after Submitting the

Application—CMCH Received USDA Financing Commitment


Financing Structure: $37 Million Direct USDA Loan From USDA Community Facilities

Program With Fixed Interest Rate of 3.375% for 40 Years

$10 Million USDA Guaranteed Loan With Market-Based Interest

Rate & 25 Year Term

• Full $10 Million financed by The Farmers & Merchants State

Bank

As of February 6th…All Financing Details Completed!


What Securing the Financing Means for Future CMCH

Strategic Direction: Biggest Capital Expenditure for the Next 20+ Years Achieved With

Exceptional Term and Rates!

Accomplishing Financing On Our Own Makes CMCH Stronger & An

Even More Attractive Partner to Others

Offers CMCH Flexibility to Pursue Collaborative Strategies

Unrelated to the Need for New Hospital Facility

Tagline & Guiding Statements

2010—CMCH Considered Development of New Tagline

What’s a Tagline?

A short, memorable statement that captures the essence of what the

organization is all about


Uncertainties With Implementing A New Tagline The Mission Statement and Values of CMCH Also Needed Revision

or Replacement…

Should that strategy be pursued first?

But, with many competing priorities when would we commit the

time to the necessary work?

If the tagline was implemented first, would it complement new

values and other guiding statements developed later?


July 2010—CMCH’s New Tagline—

Well into the FUTURE

Well into the FUTURE

What Does it Mean?…A statement of what we strive for as an outcome for all our customers. We

want them to be “well”—to have their best possible health status—“into the

future”—for an extended period of time

...A statement of CMCH’s commitment to be a champion of wellness for all

associated with CMCH & in the communities we serve

…Also a statement of our organizational direction & culture—creative,

innovative, forward thinking & proactively preparing for the future


February 26th—CMCH Board Approved New Values and

Guiding Principle Board approval was culmination of lengthy development process

that included opportunity for input & feedback from all CMCH

stakeholders…employees, medical staff, auxiliary & board On-line survey—152 respondents

Focus groups –25 employees

Feedback resulted in revision of definition of EVERY Value & the

Guiding Principle

Development process a successful & positive experience for CMCH


Key Survey Question:

“How well do the proposed Values, Guiding Principle and Tagline

Complement & Support One Another?”

80% of survey participants responded “Very Well and Well”

Only 2 participants responded “Not Very Well or Not Well at All”

Affirmed the risk taken in pursuing the Tagline strategy first!

CMCH’s New Guiding Principle

Guiding Principle: Defines the purpose of Cameron Hospital—why we

exist & states what Cameron Hospital intends to achieve & to become

in the future

“Our team commits to exceptional service and the

highest quality, safest care—every patient, every time”

CMCH’s New Values

Values: Core beliefs that establish expectations for our individual &

organizational actions. They represent the soul of Cameron Hospital &

provide foundation for the Cameron Guiding Principle

Safety Safety—first and always

Compassion Demonstrating care and kindness through our actions

Integrity We embrace strong moral and ethical principles

CMCH’s New Values

Teamwork Together we’re stronger

Stewardship Responsibly using the resources entrusted to us

Excellence Committed to excellence

Respect We honor the dignity of each individual

Wellness Promoting overall health—mind, body and spirit

Values & Guiding Principle

Values & Guiding Principle Vitally Important: Provide foundation for everything that we are

Direct our actions

Provide a means for evaluating our success

Serve as a guide in testing the appropriateness of pursuing specific

strategies—

• ”Is _____ consistent with our Values?”

• “Will it help us achieve our Guiding Principle?”

• “Is it responsive to the needs of the patients, families and communities

we serve?”

In Closing:

Life will always be uncertain

It’s not going to be different next week, next month…next

year

There frequently doesn’t seem to be enough time to stop &

do strategy—but it’s not going to naturally develop on its

own over time!

• And…The rate of change will never again be as slow as it is

today!

Often…The Best Advice About Strategy Is…

Because…

“The future ain’t what it use to be.”

Yogi Berra

Best Wishes In Pursuing Strategy &

Making Choices…EVEN in the Midst of

Tumultuous Times!

Leadership & Management

The Case for Strategy in the Midst of Tumultuous Times