Hillside Hospital: Physician-led Planning
The CEO’s Dilemma
HCM731 Competitive Strategy Determination
Background: Hillside Hospital in Crisis
After only six months as CEO of Hillside Hospital, Bill Hurt finds his
organization in a major crisis. Hillside Hospital, though operationally autonomous, is part
of a not-for-profit management company, Value Health, that provides little corporate
direction in strategic, capital, or budget planning. The corporate organizational structure
encourages little collaboration and may in fact foster competition between its hospitals.
Bill Hurt is faced with many problems, the most serious being the poor working
relationship the hospital has with its doctors. Both primary care and specialist physicians
have lost confidence in Hillside’s senior management team. They feel alienated and
disconnected from the organization and believe that Hillside lacks vision.
In addition, Hillside finds itself in an ever increasingly competitive environment.
It continues to lose market share in key clinical service programs to competitor hospitals,
and freestanding physician-owned diagnostic and treatment facilities. Hillside has to
contend with 12 competitors in its primary region (7 non-Value Health organizations).
Though Hillside maintains a high standard of quality of care, it continues to hold a higher
share of Medicare patients and a lower share of commercial business than its competitors,
and continues to lose ground in ambulatory surgery. Unlike its major competitor, Valley
Hospital, Hillside has failed to develop strategic collaborations with its physician groups.
Though Hillside has a strong past financial performance record, it has experienced
recent decreases in its operating margin due to increasing operating expenses. Hillside
has never had long-term plans for growth or a comprehensive capital plan. A consulting
firm brought in by Value Health prepared Hillside’s most recent strategic plan. This plan
was based solely on demographic data and financial information with no input from
physicians, front line staff, or patients.
Bill Hurt also has to contend with an aging medical staff, shortage of primary care
physicians, an unclear strategy, aging physical plant, outmoded information technology,
and a low profile in the community. As the Hillside CEO, he recognizes the hospital’s
strengths including a faith-based mission, high quality physicians, strong clinical
services, and reasonable financial performance. He also needs to decide whether to use a
strategic planning approach called “physician-led clinical priority setting” as a means of
keeping the physicians engaged while the hospital’s problems are worked out.
1. What are the risks of the approach that Bill is considering?
Hillside physicians feel disenfranchised, disengaged, and disenchanted with the
hospital and executive leadership. They see management as inaccessible and reactive,
lacking in vision. The proposed physician-led clinical priority setting process may further
reinforce these perceptions. The model does not improve the poor collaboration between
the physicians and management, which is a major strategic issue for the organization.
Symbolically, the approach appears to have the CEO giving away his power and control
to the physician group, which the physicians may see as the CEO and management
abandoning their responsibility to lead the organization and create vision by abdicating
the strategic planning process to physicians with no direct management participation. As
such, the process itself may further polarize the physicians.
At the onset of planning, the organization needs a vision of its future. The CEO,
with the Board’s support, must create and then communicate this vision. Without it, the
proposed approach may have difficulty succeeding. In addition, a strategic planning
process needs to be situational and tailored to the needs of the organization and its
culture. The CEO and senior management need to design a strategic planning system that
organizes and coordinates all the activities of the managers who do the planning. The
CEO needs to determine how the planning activities performed by the physicians will
contribute to the overall planning process.
The planning process is complicated and needs expert input and coordination, and
little has been done to prepare the physicians for this kind of leadership role. Without the
involvement of management, the proposed process does not provide the physician group
with the technical support required to succeed. In addition, physicians have values and
skills that differentiate them from hospital administrators. Physicians are thick-skinned
risk takers who must always win, are insensitive to collaborative efforts, very results
oriented (not process oriented), like fast “clear” decisions, and tend to put self-interests
first. These characteristics would benefit a collaborative strategic planning process, but in
a process that operates in isolation, could result in disastrous outcomes. Any
recommendations made following the physician-led clinical priority-setting process may
be self-serving and not in the organization’s best interests.
Strategic planning requires decision-making and establishing clearly defined
strategic priorities. Hospitals need to decide on which programs will grow, shrink, or stay
the same and, at times, hospitals need to divest of certain programs. Physicians have a
stake in growing their own programs or areas of specialty. As a group, physicians may
not be able to decide on what to grow, shrink, or divest because of self-interests. Defining
assumptions and establishing parameters may help control and facilitate the decision-
To date, external consultants have performed the strategic planning process at
Hillside Hospital with little input from management, physicians, or front-line staff.
Consultants bring benefit to the strategic planning by leading the process and bring
objectivity to it. But they should not be deciding the strategic priorities—this is the
responsibility of management and the Board. Senior management is integral to any
comprehensive strategic planning process, as they bring insight and perspectives about
the organization that physicians may not have. Allowing physicians to do the clinical
priority planning with limited management input further complicates what is already a
very disjointed strategic planning process. This is very risky, because if the process fails,
the CEO and management will look bad to the physicians. Finally, what would Bill Hurst
do if the physicians made recommendations that were not consistent with his strategic
direction? Without establishing parameters, the physician-led clinical priority-setting
approach has great potential to generate conflict.
2. What are the potential benefits?
The proposed physician-led clinical priority-setting process has many potential
benefits. Most notable is the increase in physician engagement and collaboration that
would strengthen their sense of belonging and control. This would also help to increase
organizational loyalty amongst the physicians who all work at multiple hospitals. The
process would increase primary care physician involvement. The process also
acknowledges the role and influence of physicians and engages them in identifying and
solving problems that are important to them. The process will also help to improve the
poor working relationship that exists between physicians and management. It will also
increase physician awareness of the key issues facing Hillside.
The process may also help the organization better define its business units.
Management would need to provide the physicians with the appropriate financial,
marketing, operational and quality data along with future projections. In the context of
clearly described assumptions and parameters from the CEO, the planning process could
define the priority programs for Hillside. For example, the physician led group may
identify Cardiac Care, Neurosciences, Oncology, Ambulatory Surgery, and Medical
Imaging as Hillside’s top five priority programs. Defining strategic commitments early in
the planning process would allow for stronger linkage between planning and budgeting.
The process would also help to clarify strategy and develop vision for the
organization. It would allow for comprehensive review of the service line strategies
proposed by consultants and help set the stage for budgeting and capital planning
following the establishment of clinical program priorities. Through this process, the
organization may see the value of future joint collaborations with physician groups.
Finally, the physicians would better understand how difficult strategic decision-making
is. This is a very powerful benefit to relationship building—putting the physicians in the
shoes of administrators.
3. What are alternative approaches, and how do they compare in terms of risk–benefit?
1. CEO Driven Strategic Planning
In this approach, the CEO decides on the organization’s vision and strategic priorities.
The CEO and senior management control the strategic planning, budgeting and capital
planning processes. There would be little input from physicians, front-line staff, or the
Risks. A major risk of this approach is that the CEO and/or the senior management
team may not have skills to do this type of planning; they may also not be comfortable
with this style of leadership. The process may further alienate the physicians and
perpetuate their perception of leadership being inaccessible and non-collaborative. In a
worse case scenario, the physicians may retaliate, leaving Hillside for another
organization. The proposed planning approach may adversely affect staff morale by
excluding them from contributing to the organization’s future. This may translate into
major clinical care quality issues for the organization. Finally, implementing changes
may be challenging, due to lack of buy-in by staff including physicians.
Benefits. This approach has a clear vision and direction for Hillside Hospital
during a period of extreme crisis. In addition, the physicians may see this action as
strength and direction from CEO and senior management team. Competitors may notice
Hillside’s assertive posture as the Hospital immediately addresses market share, volume,
and brand issues.
2. Value Health Driven Strategic Planning
In this approach, greater input and control of the strategic planning process from
Value Health would be realized. As part of the process, Value Health as a corporate
entity would benefit from a review its corporate structure to ensure that its incentives are
appropriately aligned so as that the organization can succeed. Value Health would then
need to establish corporate-wide goals. For example, the organization may want to
become the work place of choice for doctors, nurses and allied health professions in the
region; become a leader in health services information technology; or become a national
leader in neurosciences.
The CEO and the Value Health Board need to set strategic directions that will
help set the course for the other hospitals in the organization. Value Health would then
provide all the necessary support to its hospitals for both corporate-wide and hospital-
based strategic planning.
Risks. The risks include too much central control, and the potential loss of
individual hospital responsiveness to environmental changes. The process may be too
large to manage, expensive, and of questionable value. The physicians may see this as
another move towards even bigger and slower leadership. Finally, corporate planning of
this magnitude usually takes a great deal of time, a luxury Hillside does not have.
Benefits. This approach forces Value Health CEO and Board to reevaluate their
role in strategic planning and to evaluate the organizational structure to ensure that all the
incentives necessary for corporate success are in place. The approach will ensure
strategic alignment within Value Health, with one vision for all. There would be greater
direction and leadership from the CEO and the Board of Value Health to each of the
hospitals. The process may stimulate opportunities for hospitals to share skills, develop
programs of excellence, and develop collaborative ventures with physicians. By
identifying central corporate responsibilities like information technology, Value Health
may strengthen each hospital’s position.
3. Collaborative Value-Driven Strategic Planning
In this approach, there would be no changes at the corporate level (i.e., Value
Health). Hillside’s CEO, with input from senior management, would lead the highly
collaborative strategic planning process, involving broad consultation and input from
middle management, front line staff, medical leadership, opinion leaders, and
patients/consumers. The process is open and transparent. The organization will need to
define the values it is trying to create, which will help define objectives. Design drivers
could include the need to increase market share or physician collaboration. Design
features of the process include performance measures, utilization of specific planning
techniques, links to budgeting process and development of an implementation plan.
Risks. The process may be too big, cumbersome, and time consuming. It could
also play into multiple competing agendas, which would make it very political.
Benefits. The CEO and senior management maintain control over the strategic
planning process, which is inclusive and transparent. It is also collaborative, and would
go some distance to addressing the issue of poor relationships with physicians, in that it
would allow working relationships to develop between physicians and management. It
would also allows management to highlight the hand surgery service model of financial
and clinical collaboration, which is an example of a successful collaboration with
physicians at Hillside.