Well, the mega-mergers continue. Today’s new announcement—Catholic Health Initiatives and Dignity Health will merge to create the country’s largest non-profit health care system in the nation, spanning 28 states, 139 hospitals, and 700 care sites (see Catholic-Dignity Merger To Forge Nonprofit Health Giant).
I recently wrote about the challenges of strategy and sustainability in a time of these mega-combinations and of new entrants in the market—David Versus Goliath? and Can You Teach A Fish To Climb A Tree?. But it isn’t mega-mergers alone. There has been a steady stream of announcements of mergers and acquisitions in recent months:
- Centerstone & Uspiritus To Merge
- Allscripts Top Acquirer Of Digital Health Businesses, With 7 Since 2013
- Odyssey Behavioral Healthcare Acquires Selah House
- S. HealthWorks Builds Upon Presence In Indiana With Acquisition
- Inperium Enters Acquisition Agreement With Reading Specialists Educational Association
- Meridian Behavioral Health Acquires New Beginnings Minnesota
- Steward Closes $2 Billion Acquisition Of Iasis’ 18 Hospitals
- Penn State Acquires Large Independent Medical Group In Lancaster County
- Nobilis Health Announces The Acquisition Of DeRosa Medical
- Omega Healthcare Acquires 15 Indiana Nursing Homes For $190 Million
The articles got many responses from our members. But the one that explains the ground-level problem came from an executive at a $200+ specialty provider organization:
What an incredibly timely message. From my seat, the struggle goes beyond finding ways to get the executive team to buy in. We’ve opened their minds now we need to open the corporate wallet a bit to fund some initiatives. Spare change? Anything?! A larger hurdle is finding Board Member buy in around the need for innovation. Business Development Innovation isn’t an accessory, it’s a necessity. If you happen to find the magic wand for that hurdle please let me know!
This is not an atypical situation. The executive teams and board members of many non-profit organizations continue to view marketing and business development spending as “optional.” In fact, I was a call with the chief executive officer of a smaller ($40 million) organization in the southeast United States. The organization is in the process of building a new facility, while expanding their service lines and geographic footprint. When I asked about the structure of their marketing and business development team, the response was “we don’t have the budget to afford marketing staff.” The pivot in strategic thinking that is needed is to view marketing and business development functions as “investments” with an expected return—and developing a marketing plan/budget that provides the expected 3:1 return. And manage to those returns.
My response to our reader trying to change the business culture at an organization? Unfortunately, there is no magic bullet for this particular type of cultural change. But I have found in my strategy consultation that three areas of focus help executive teams and board members make this pivot:
- Determine declining revenue streams and declining margins. In your long-term planning for the service lines in your portfolio, identify the current revenue streams where there will be no rate increases (and, as a result, declining margins). Also identify the revenue streams where payer policy, increased competition, or other environmental factors will decrease the number of consumers and revenues. These are revenues, and margins, that need to be replaced.
- Analyze (and quantify) the likely effects of competition. Across your portfolio, identify key competitors by service line—and their effects on your revenue and margins.
- Focus on the growth plan and the target margin. What is the organic (non-acquisition) growth target the organization is setting in their strategic planning and budgeting process? If the targeted growth expectation and the targeted margin are less than 4% or so, the plan will likely be largely focused on status quo (and budget cuts) and not have a focus (or the funds) for growth (either through expansion of current service lines or new service line development).
These are the strategy discussions that I find most often results in the collective agreement that a new action plan—usually one driven by marketing and business development—needs to happen.
For more, check out the seminar, Reinventing Your Organization In A Complex Market: A Guide To Building A Sustainable, Performance-Driven Organization, conducted by myself and colleague Sharon Hicks at The 2016 OPEN MINDS Management Best Practices Institute. And, for even more, plan to attend our upcoming seminars on strategy and marketing planning:
- How To Develop A Successful Marketing Plan: The OPEN MINDS Seminar On Marketing Strategy, featuring OPEN MINDS Senior Associate Kristi Hamilton on August 14 at The 2018 OPEN MINDS Management Best Practices Institute in Long Beach, Californai
- How To Build Value-Based Payer Partnerships: An OPEN MINDS Executive Seminar On Best Practices In Marketing, Negotiating, & Contracting With Health Plans, featuring OPEN MINDS Senior Associate Steve Ramsland on September 17 at The 2018 OPEN MINDS Executive Leadership Retreat in Gettysburg, Pennsylvania
- How to Develop a Strategic Plan: An OPEN MINDS Executive Seminar On Best Practices in Strategy, Portfolio Management, & Scenario-Based Planning, featuring OPEN MINDS Senior Associate Joseph Naughton-Travers on September 21 at The 2018 OPEN MINDS Executive Leadership Retreat in Gettysburg, Pennsylvania
As you plan your organization’s sustainability strategy, don’t forget the advice (one of my favorites) from Peter Drucker: “The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.”