Scenario Planning for Health-care Organizations
If you’re not scenario planning, you’re not planning. This bold assertion, issued in a recent white paper by GE Healthcare, is the driving philosophy behind the company’s $6 billion healthymagination initiative, and is an approach that it hopes to spread among health-care organizations. Survival in the health-care industry demands scenario-based planning, Tim Butler, senior consulting manager at GE Healthcare Performance Solutions, Waukesha, Wis, explains. Through his consulting role with Performance Solutions, Butler assists health-care organizations with scenario planning based on GE’s own model, which entails setting goals based on assumptions on how the industry will evolve. To understand their current positions in the marketplace, organizations must begin by periodically asking certain questions of themselves: Who are we? What is our role? What are we trying to become? Butler points out that while these questions seem fairly basic, many companies fail to perform this exercise regularly. “For many organizations, who they are is a function of what they’ve morphed to become. They may have been around for many years and have never recently asked themselves what they are trying to accomplish,” he says. Furthermore, some businesses concentrate too much on the past: “They don’t really take that next step to say, ‘Here is what we believe is going to unfold in the environment in which we are operating over the period we are talking about,’” he says. Making the Right Assumptions How can companies make accurate assumptions about a health-care landscape that is always changing? Butler says that they must be highly informed about market dynamics and should have a comprehensive understanding of their own histories. In addition, they should have an ear trained on the conversation outside their own organization and marketplace. “We promote contemporary depths of understanding about the dynamics that are going on today,” Butler says. “We promote having a pretty broad exposure to external voices and what they’re saying might happen over the next period of time. It’s one thing to look at data and trends; it’s another thing to listen intently to the opinions that are being expressed.” As a company, GE determines where to gamble by positioning combinations of key trends and looking at their implications to create various scenarios, then evaluating those scenarios according to their probability levels. The company then considers initiatives that will produce benefits across all possible scenarios, understanding that these must-do initiatives are the ones in which they will invest, even in today’s environment of uncertainty. For example, the company notes that the 2009 health-care CEO turnover rate was 18%, according to the American College of Healthcare Executives; as this trend continues, businesses will find it challenging to replace retiring baby boomers. A must-do, then, is investing in the leadership pipeline. In the white paper Reforming the Healthcare System From Within, Mark Vachon, CEO of GE Healthcare Americas, points to other trends that are likely to affect health-care organizations in the near term: the shift in care settings creates the must-do “Build new business models that go where the patients will be,” while the nursing shortage creates the must-do “Launch innovations that increase patients’ access to the right caregivers at the right time at the right cost.” Vachon notes, “Change is the new constant,” a sentiment reiterated by Butler. When a health-care organization makes the decision to evolve according to the changing environment, it can choose to serve an entirely different constituency, or it can decide to make fundamental changes in order to serve its existing constituency better. “In health care, these versions of goal changing are on the horizon,” Butler says. Driving Change Butler has observed that leaders often struggle to state an assumption definitively and with confidence, yet good assumptions are required to set goals and drive change. To engage in effective scenario planning, leaders must have informed opinions and must be comfortable with prognosticating. Furthermore, when certain assumptions don’t make sense or scenarios seem implausible, it is important for colleagues to ask questions and challenge each other; developing a respectful candor is crucial. “It is significantly about developing the ability to have those conversations in a constructive and productive way,” Butler says. Learning from the example set by his own employer, Butler advises organizations to determine which levers affecting their goals are the most critical: there are top-line levers, dealing with volumes, prices, and payor mix; bottom-line levers, composed of supply, productivity, and labor costs; and levers related to payor contracts, referring-physician outreach, marketing, throughput, and turnaround times. By prioritizing these levers, health-care enterprises can filter their larger goals into their smaller, departmental components. Butler promotes a process through which volume, net-revenue, and contribution-margin targets are filtered down through the organization, with each department playing a specific role. “When we build a performance model, we take great care to understand what the levers are and what drives what,” he says. “What we often find is that organizations will create those higher-level models that are relatively validated, but they never really drill it down at an operating level. At GE, that’s what we do, and that’s what we’re doing, more and more, when we work with health-care systems.” He cautions that this process isn’t just about creating a budget and reinforcing cost measures by department: “It is about extending and deepening the performance model of the organization,” he says. Butler concludes that as the market and environment surrounding health care have become more dynamic, innovative, out-of-the-box thinking have become requirements for survival. “Scenario planning—this approach of thinking through assumptions—causes organizations to broaden their horizons,” he says. “I think that as current dynamics have increased the pace, the need for increased innovation has heightened.” Elaine Sanchez is a contributing writer for