Getting a Handle on Analytics for Strategic Success

By Brooks, Michael G

In the current economy, it is more crucial than ever for healthcare financial executives to identify and manage the metrics that determine strategic success. Rates of change and complexity have accelerated to new levels, requiring health systems to respond to fundamental shifts in the healthcare industry such as increased competition, pay for performance, consumerism, and market consolidation. Executives can no longer manage their organizations as entities with isolated internal processes; instead, they need to consider how their activities relate to external influences. Unfortunately, traditional reporting tools offer views of the organization as seen only through internal silos. These disconnected systems make it nearly impossible for executives to gain an overview of what is going on in a healthcare system at any point in time.

By implementing a metrics-based framework for reporting, CFOs can bring together measures for compliance, performance, and risk management for their hospitals’ operating and strategic success. How can new efficiencies and new economic advantages be obtained in a timely and cost-effective manner? The first part of the solution lies in embedding better key performance indicators (KPIs) into decision-making processes. To this end, leaders should determine which KPIs are most important to strategic success and then implement new technology to optimize use of analytical information.

Keys to Better Metrics Frameworks

Executives are looking for better ways to manage their operations. Historically, management has looked to IT, health information systems (HIS) vendors, and consultants for answers. The result of this approach has often been increased use of transaction- based systems that automate traditional processes with greater efficiency. This approach, however, falls short in delivering actionable, understandable information that enables key decision makers to more effectively drive strategic execution.

From the CFO’s perspective, there has never been a more important time to get a handle on the metrics that determine operational and strategic success. No other individual sits in such a pivotal position where the integrated demands of compliance, performance, and risk management come together. Finance executives and other members of the leadership team can benefit greatly from understanding how best to approach defining and enabling the use of the optimum KPIs.

Take a systems view. Identifying the KPIs of the organization requires viewing the organization not as a series of distinct processes and departments but as a system. This systems view involves looking at the enterprise as a collection of interrelated components (people, processes, systems, etc.). To attempt to improve one area without considering the effect on other areas frequently leads to suboptimal results, such as optimizing human resources and procurement costs to the detriment of clinical outcomes.

Use precision targeting. To accelerate to results and minimize the risk of getting sidetracked in the metrics development process, focus specifically on the organization’s high-priority areas where performance must be measured. Financial executives need to understand which components of the organization are most critical to the achievement of strategic success. Some areas of the organization are in a position to impact strategic success while others, although important to the tactical operations of specific business, may not be strategic in nature. For example, if establishing a heart treatment center of excellence is a major strategic initiative, then clinical leadership, endowment, and finance may be more critical than procurement or IT.

Ensure strategic alignment. Achieving organizational success requires aligning the critical parts of the organization such as goals, resources, reward systems, and metrics to drive top-tobottom execution. Organizations that have an established governance structure often develop inconsistencies in reporting, performance criteria, and reward structures over time that impair their ability to execute strategically.

Personalize data. Although there may be many uses for the same data, decision makers at various levels of the organization may benefit from the presentation of data in a context that is most relevant to their specific needs. Characteristics of personalization include timeliness, graphical/tabular displays, alert criteria, filtering or ranking of information, and benchmarking against other internal or external reference points.

Metrics Implementation Approach

An effective metrics framework can be deployed through a five- step process that focuses on initiatives that are strategically most significant to the organization.

Step 1. Define the future. The first step to implementing an effective framework is to get a clear picture of the desired future strategic result. At this stage, the executive team defines the mission and strategy in detail, both quantitatively and qualitatively, in a manner that is compelling, understandable, and objective. The level of detail should be meaningful with sufficient resolution to allow execution in the real world and it should include timeframes that are achievable for everyone. This definition process facilitates identifying the strategic measures that ultimately define success and provides a perspective to subordinate levels of the organization that guides their tactical execution within the context of a bigger picture.

With a detailed quantitative and qualitative description of the future in place, strategic measures of success begin to take shape.

These measures should focus clearly on the ends rather than the means. They also provide a guide for establishing more detailed tactical performance measures. A high-level example of a future picture would be “Within five years, XYZ Healthcare will be the premier health provider in the Tri-Cities area for the delivery of affordable, high-quality healthcare services for chronically ill cancer patients and their families.”

Step 2. Identify strategic initiatives. Once a clear definition of the future has been established, the next step is to determine specific strategic initiatives that are necessary and contribute the most to achieving the desired future state. For example:

* What are the top five things the organization must accomplish to achieve its strategy?

* Which executive leaders are responsible for achievement of each strategic initiative?

* What are the organization’s objectives and timelines for success?

Strategic KPIs should be defined to provide objective, quantifiable measures of success. These KPIs sharpen the scope of the effort and guide the allocation of resources by highlighting the most essential areas.

An assessment of relevant risk factors, including their probability and impact, should be performed to monitor the potential effects of internal or external influences on each strategic initiative. CFOs and other members of the leadership team should jointly identify specific quantifiable measures, accountability, and contingency plans to address circumstances or events that could hamper achievement of each initiative. The measures may be broken down into various levels of detail and include both predictive indicators of success (leading indicators) as well as retrospective measures (lagging indicators). Finally, leaders should supplement internal measures with external measures that provide an objective reference point against which progress can be further evaluated.

Step 3. Prioritize targeted areas and activities. Rarely is any strategy executed or affected by only a single area of the organization. Strategic initiatives require the involvement and orchestration of many interrelated parts of the organization, including leadership, systems, staff, processes, and technologies that are, to varying degrees, part of the strategic and operational execution of the organization. To maximize the potential for success, attention should first be directed to those areas, or “levers,” that have the greatest impact on the strategic success using the fewest resources and then work outward from there.

For each strategic initiative, the tactical levers within the organization should be identified on the basis of their relative impact on the initiative. Start by understanding who must be involved and what needs to be done to provide the direction, resources, and establishment of momentum for an initiative. Then determine which processes are most relevant to the strategic success and what needs to be done at that level. Third, consider what components of the infrastructure need to be created, modified, or otherwise affected. Finally, make sure action plans address the specific groups of individuals who will execute the directives and policies of the organization.

Within each strategic initiative, develop an action plan, objectives, and measurable leading and lagging indicators (tactical KPIs) to guide compliance, performance, and risk management associated with those activities. Tactical KPI structures may also be composed of a hierarchy of KPIs that facilitate root cause analyses to help management understand the underlying issues within the organization that need to be addressed. Step 4. Assess constraints. At this stage, look at what resources are available today to support the strategic and tactical measures needed to accomplish the future vision. Before proceeding with the implementation of the metrics framework, establish a clear understanding of the environment and existing constraints. These constraints may come in the form of staffing, data quality/ availability, differences in assumptions, business practices, and other issues.

These constraints may also include other counterforces that affect the organization, such as culture, bureaucracies, informal relationships, departmental fiefdoms, and third-party vendors that have a vested interest in maintaining the status quo. When these counterforces are identified, take the time to root out their cause and understand their impact so that action plans that are created will allow management to work through or around them to continue progress toward the strategic future picture. In some instances, these issues will require fast, decisive leadership to ensure that the overall metrics development process does not get bogged down or compromised.

Step 5. Plan and execute. The final step in the process is the detailed planning and execution of the metrics framework. This means developing cohesive execution plans that target the areas of the business that deliver the most benefit with the least resources. With the foundation established in steps 1 through 4, financial leaders should next translate that knowledge into action by developing dashboards, reports, and processes that capture and communicate the metrics. Business users should lead this process. All too often, when IT leadership becomes the driver of the process, the focus becomes biased toward implementing technology rather than solving business problems.

With a clear description of the future picture and the associated measures identified earlier, leadership is in a much better position to know when adjustments to the framework need to be made and, ultimately, when success is achieved.

Preparing lor the Future

In health care and other industries, businesses are moving to a more knowledge-centric model. Future competitive advantage will be based on both the quality of knowledge provided to healthcare decision makers and the ability to execute on that information. Financial executives are often in the best position to effect change since the issues of compliance, performance, and risk management all come to a focal point at their desk.

AT A GLANCE

To ensure that their organizations achieve operational and strategic success, healthcare CFOs should:

* Focus on metrics that are most clearly associated with strategic success.

* Build synergy and management effectiveness into reporting processes by integrating measures for compliance, performance, and risk management.

* Target the precise levers within and outside the organization that offer the greatest potential for success at the least cost.

* Reduce time to results and manage risk by implementing frameworks within 90 days.

A five-step process that focuses on significant strategic initiatives will help organizations implement a metrics-based framework for reporting.

A framework will help organizational leaders determine key strategic initiatives most likely to contribute to achieving the organization’s strategic goals.

From the GFO’s perspective, there has never been a more important time to get a handle on the metrics that determine operational and strategic success.

Achieving organizational success requires aligning the critical parts of the organization such as goals, resources, reward systems, and metrics to drive top-to-bottom execution.

About the author

Michael G. Brooks

is vice president of business development, Visual Mining, Inc., Rockville, Md. (mbrooks@visualmining.com).

Copyright Healthcare Financial Management Association Jul 2008

(c) 2008 Healthcare Financial Management. Provided by ProQuest Information and Learning. All rights Reserved.