The board’s role in strategic planning: Six “must ask” questions

People often seek hospital and health care trusteeships because they want to “pay back” or contribute their talents to organizational improvement.

These are well-meaning motivations. The trustee is then called upon to perform a pivotal governance duty: help prepare the strategic plan. And confusion ensues. Some trustees try to draft the plan, usurping management’s job (unintentionally). Other trustees stay at space-station altitudes, trying to give management room—but abdicating a useful role (unintentionally). Governance’s role in strategic planning is easily described: it’s to assure—assure—that management prepares and follows a strategic plan that the board understands, supports, and will fund. Period. That’s it.

To do this, trustees need to ask only six questions. They are deceptively plain. And tough. Properly answered, they compel broad and deep examination and the answers are internally consistent. They are:

1. What business are we—and do we want to be--in?
2. What should our balance sheet look like?
3. Who is our talent?
4. What reputation do we want?
5. And finally, what results do we want?
6. The board, when asked, must be able to answer: “How much change do you really want?”

What business are we in? This may make management roll its collective eyes. Why? Because it seems sophomoric and, of course, they KNOW what business they’re in—and they may think you’re asking because YOU don’t know. The truth is it’s easy to take for granted what business you’re in. When a critical access hospital has no inpatients, or its revenue is 80% outpatient, is it a hospital or freestanding ED? When a hospital becomes an ACO, is it a hospital or an insurer? Suppose you’re a blood bank trustee. Is the blood bank like GM or Amazon? GM builds cars (collects, purifies, and distributes blood) and sells them through dealers (hospitals transfuse and charge patients). Amazon builds nothing; through a world-wide portal and world-class logistics, it connects sellers (blood banks) with seekers (hospitals). They are different business models and businesses.

If you can’t describe the business you’re in, or want to be in, you can’t reliably answer the questions that come next…

What should our balance sheet look like? Suppose the board says to management, as it rightly could, “Within five years, we want to triple cash balances and retire all debt.” Or suppose it says, “Within five years, we want to triple cash balances, and the debt to equity ratio can increase to 1:1.” These different directives present management very different “could do” and “can’t do” opportunities and constraints—demonstrating that this question is inseparable from decisions about costs, prices, sales, growth, profitability, indebtedness, capital investment, rates of return, unit sales, market share, possible affiliations, and more. The point is that governance should establish (negotiate) parameters. The board’s helpful role is to say, “Let’s go to Kansas City and only spend $150 (or $5,000); plan the trip.” At $150, management knows we are driving, not spending the night, and eating at McDonalds. At $5,000, we’re flying, taking colleagues, spending a few nights, and having steak—and putting it on the credit card. Another benefit of this question is that the answer goes far in describing the P&L.

Who is our talent? Healthcare is a service and service companies rely on people. The purpose of this question is to address the nature and amount of talent (or the lack of it) needed in the organization. Does the enterprise have the right kinds, numbers, and mixes of key skills, experiences, and perspectives? The question compels a hard look at the people on whom the organization relies for success. It lets the board be informed about, and hold the CEO accountable for, the workforce. It invites management to deliberately plan the labor force of its future. It honors a fundamental CEO prerogative: picking the team. It insures that management (and the plan) addresses recruitment, retention, development, and succession of its key personnel—whether management, physicians, scientists, salespeople, or fellow board members.

What reputation do we want? Every organization has an image—to its customers, employees, suppliers, regulators, bankers, community, and other stakeholders. What should the image be? Think of any three companies you do business with, and describe them. “Hard to do business with.” “Best prices.” “Great people.” “Always do the right thing.” “In it for themselves.” “Looks good, runs lousy.” “I’d do anything to work for them.” This question forces management to address its branding, value proposition, culture, citizenship, management styles, values, reward systems, employee training, product (or service) quality, and more.

What results do we want? A strategic plan is a cause and effect document. “We will do these things to produce these results.” Its purpose is to describe future actions designed to produce future effects. The flaw in many plans is that they are mute on the expected results. The “what” answer ultimately belongs to the board. “We want to go to Kansas City.” “Within three years we want 30% of our revenue to come from new business lines that are adjacent to current business lines.” Those are whats. How will it be achieved? That answer belongs to management—fueled and constrained by answers to the four previous questions. It’s management’s job to figure that out, write it into the plan, and get board support for the actions and resource commitments. Keeping “what” separate from “how” helps prevent the board and management from confusing their roles.

Yet, the board itself has one question to answer before asking any of management. The question for the is blunt, but necessary: What’s our desire—and appetite—for change? The first opportunity for a board/management schism is around this question. Trouble arises when management wants more change than the board—and vice versa. Before sending management away to answer its questions, the board should answer this one first. The answer will profoundly influence the answers to the other five. And proceed with caution: many boards passionately want change—right up until the moment they get it.

Governance and management need each other to develop a strategic plan. These questions, and the process of answering them, keep each in their rightful, most effective roles. These questions will prompt debate and perhaps contention, but also focus and clarity. Ask. Listen. Think. Choose. Communicate. Act. Assess.

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Christopher E. Press, FACHE, is a former hospital president, a founding partner of Morgan Healthcare Consulting, LLC, and an adjunct assistant professor at Emory University’s Rollins School of Public Health. He lives in Atlanta.

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