SFO Blog - Helping You Build Your Company into a Strategy Focused Organization

Real World Advice for Setting Targets for Your KPI’s

If you and your team are going to invest time and effort into measuring the performance of the things you do in your business to put your strategy into motion and move your company forward towards an ultimate success goal, you’ll need indicators (KPI’s).

Of course, choosing the right KPI’s is your first step. The next step is to set performance targets, or a “comparator”, for each KPI. Using performance targets is an essential part of the measurement process. In addition to providing insight into the adequacy of current business performance, targets help you use measurement to learn about your business and make pro-active adjustments when they’re required.

I have written in the past about the art (and science) of setting performance targets and, while that advice is solid, it’s pretty “textbook”. That is, it’s based on theory and best practice, however, my experience has been that conditions “on the ground” rarely lend themselves to the application of theory. In fact, the textbook approach to target setting (i.e. leveraging budget targets or benchmarking historical performance to set incremental targets) can often be impractical. This is particularly true when you’re trying to create a strategy-focused scorecard that extends past the usual financial and operations metrics.

When your company is making the leap to measuring strategy versus operational activities you often need to use “new” KPI’s that don’t have a convenient data trail. Problems also arise for companies when they try to add measurement discipline into their business management toolkit for the first time.

So, what are some practical options for setting reasonable performance targets when you’re in one of these situations? Here are the steps I take my clients through to set targets for first time KPI’s:

 

1 Establish what “success” looks like for your business at a defined point in the future

What is your business trying to achieve by a certain date in the future? What does “success” look like? What would we measure and how would you know that success has in fact been achieved?

Answering these questions requires some big picture thinking at the total business level. If you are lucky, you might even have some performance data to inform your discussions. Once you answer these questions, you’ll have a metric (or metrics) defined, a performance target, and a timetable for achieving that target.

EXAMPLE: Grow revenue from new products by 25% over the next 5 years.

 

2 Break down your vision for business success into measureable annual milestones

Now, looking at your business success metric, target and timeframe, think about where your company’s performance is today. Is there a gap and how big is it? If you have data to refer to that’s great! If you don’t, make a ballpark estimate on the size of the gap. Then, using this information, plot out a series of annual targets for your success metric that are realistic and will get your company from today’s performance to the level you defined for your future date.

EXAMPLE: % revenue growth from new products

Year 1	Year 2	Year 3	Year 4	Year 5
0%	3%	8%	17%	25%

 

 

3 Determine how the business activities your KPI is measuring would be performing at each milestone to support the achievement of your measureable business success goals

Now that you’ve got the big picture defined and the progression from today to the future plotted out, take one of your KPI’s and think about the business process/work it represents/measures.

Think about how that business process contributes to the achievement of your business success goal. Don’t forget to also think about how it combines with other business processes or projects to achieve the success goal. Now, based on this thinking, describe how the process needs to perform over the next few years if it’s going to play its part in helping your company achieve each of the annual targets you’ve set for your success goal. These descriptions might include a number but it’s more likely that they’ll be a word description.

EXAMPLE:

KPI: Product Idea Conversion Rate

Relevant Business Activity/Process – Product Idea Generation

Year 1: Get better insights into customer needs and the solutions they need/will buy – leverage technology and analytics; Develop processes and capabilities to clearly align product ideas with customer needs and solutions

Year 2: Demonstrate clear customer need alignment in 70% of new product ideas – Increase speed of new product ideas into the product development process 

Year 3: Demonstrate clear customer need alignment in 100% of new product ideas – optimize speed of new product ideas into the product development process

Year 4: Achieve top 10 rating in the marketplace – customers rating our new products as products they want and need; Develop ability to anticipate emerging trends in customer needs and the solutions they need via advanced analytics

Year 5: Achieve top 3 rating in the marketplace – customers rating our new products as products they want and need  

 

4 Set the target for the KPI at a level that aligns with/supports this year’s success goal

Now, leveraging the information you created in step 3, set a performance target for year 1 ONLY for the KPI in question. (there’s no point in setting targets beyond year 1 at this point because we’ve still got some learning to do)

EXAMPLE:

KPI: Product Idea Conversion Rate (% of product ideas that get through our product development stage gates AND generate forecasted sales in the marketplace)

Year 1 Target: Maintain current performance (i.e. the same results) for Product Idea Conversion Rate

 

5 Begin collecting performance data and notice how actual results compare to target

Now it’s time to get busy collecting data for your KPI and comparing your actual results to the year 1 performance target. Collect actual results data using your year 1 target for 2 – 3 measurement periods and then pause to see what the data may be telling you.

 

6 Review and analyze

With some actual versus target data in hand, it’s time to look at what you’ve got. Asking and answering a few key questions will give you some valuable insights.

How are actuals doing against your year 1 target?

Is actual performance above, at, or below target on a consistent basis?

What kind of performance are you seeing on your success goal with this KPI performing at its current levels?

Are actual performance levels (success goal and KPI) moving us forward and is it at the right/expected pace?

 

With the answers to these questions in hand, move on to step 7.

 

7 Learn and adjust

Step 7 is all about learning (a) whether the targets you have set for your success goal and KPI are appropriate; and (b) where today’s business performance stands versus where you need to be on the journey to your ultimate success goal (i.e. is there a performance gap today and if there is, is it bigger than, smaller than, or as you expected when you were completing steps 2 – 4?), and then making some decisions about where to adjust (if needed).

What kinds of adjustments do I mean? Sometimes you decide that you need to change targets/the progression of targets because you discover that the performance gap is bigger than you thought it was. However, sometimes you discover that the performance gap is bigger than expected and you decide that, rather than adjusting targets, you’re going to invest in building capabilities to perform at higher levels. In other words, you decide to go after the performance gap issue itself. The adjustments you make will depend on what you learn and how you want to respond.

 

Taking this learning-based approach to setting targets for new KPI’s works in the real world and has lots of important benefits for you and your business that extend beyond successfully implementing measurement. Here’s just a few:

• It gets you and your team thinking and talking about what you are trying to achieve in your business in both quantitative and qualitative ways - getting everyone clear about what success looks like for your company has a big impact on accelerating results;
• By helping you link KPI performance targets with desired business results, measurement feels less theoretical and more relevant to your business performance management efforts;
• You can get started with measurement sooner than later (no waiting to create a data trail before setting targets); and
• Because you have more insight into your business than you did before, you and our team can make the evidence-informed business decisions that drive greater business results and outcomes much faster.

 

 

Simplified Not Simplistic Strategy

Let’s agree on one thing. Business is complicated. It doesn’t matter what business or sector your organization is in – there are lots of things going on inside and out that have to come together in just the right way for your organization and people to produce great results.

However, business complexity shouldn’t cause organizations and leaders to opt for a simplistic approach to strategy. What it does call for is strategy simplification. Let’s look at the difference.

Many organizations respond to the complexity challenge by either summarizing the ultimate objectives of the organization into three or four key results areas or themes (and calling that their strategy) OR including the kitchen sink in their strategic plan. If you’ve been around organizations long enough I’m sure that you’ve seen both of these scenarios in action! And even though these appear to be different problems, they have something in common - they both display a simplistic approach to strategy. One does it by providing a slim list of high level strategic results areas that’s not actionable while the other does it by providing so much information that it completely obscures the business imperatives.

In my experience, the common belief underlying both of these approaches to strategy is that employees can’t make sense of detailed information and must be shielded from the complexity of the business in their daily work and decisions. The first tactic does this by effectively limiting strategy information (which doesn’t help employees prioritize their work and decisions – something employees are increasingly pleading for these days) while the other tries to provide a fully scripted set of activities for employees to implement (an approach that grossly underutilizes the talents of a workforce and frequently misdirects its work efforts).

The truth is that, as an approach to moving an organization, and strategy, forward, simplistic strategy is riskier than business leaders may have imagined – here’s a few of the reasons why:

• Without insight into the drivers of the desired business results, employees make their own calls about what their daily priorities should be (don’t forget – employees are smart people). It’s almost guaranteed that these decisions will result in well intentioned misalignments that cause inefficiencies, mis-spending, and conflict across the organization, all of which make results achievement much harder than it has to be.

• An over-orchestrated strategy that includes prescriptive employee action and task assignments, more management controls, and restricted decision authorities squelches employee engagement and morale, and hobbles an organization’s ability to respond pro-actively and organically to change.

However, the biggest downside of taking the simplistic approach to strategy is that leadership is perceived as not being in touch with the realities of the business and employee confidence in leadership is eroded.

In contrast, a simplified strategy acknowledges that business is complicated while seeking to find the line of “best fit” through the complexity. It goes beyond defining the key results that must be delivered to be successful to also identify the SHORT LIST of objectives that must be in place (and executed well) to drive the desired business results. Rather than treating employees as unsophisticated thinkers, the simplified approach engages employees from all across the organization in identifying and continually refining the drivers of success (leveraging learning, knowledge sharing, and collaborative problem solving). And, most importantly, an effective simplified strategy provides employees with the information they need to make the work priorities, decisions, and trade-offs required every day much clearer.

Many business leaders shy away from the simplified approach to strategy due to the investment, work, and engagement effort it requires. However, that’s only part of the equation – it’s better to look at the total ROI (financial and non-financial/human impact) of any approach to strategy. In an era of complexity and flux, the ROI associated with the simplified approach to strategy continues to outperform the ROI of simplistic strategy.

I don’t expect it to change anytime soon…..

 

What Drives Strategy Mastery?

In my last blog post I introduced the most essential ingredient for strategy execution success: Strategy Mastery^TM.   Here’s a quick reminder of what Strategy Mastery^TM is and what it looks like in action:

Strategy Mastery^TM

Every employee in your organization must be a Strategy Master. That is, they need to know what your strategy story is and they must be confident in (1) that knowledge (i.e. that they have the strategy story right) and (2) their contribution to the strategy. Strategy Mastery^TM is important because it drives self-motivated engagement and confident employee action, decision-making, and contribution to strategy improvement, greater organizational alignment, and more integrated business performance. All of which are essential for strategy execution success.

 

Creating employees who are Strategy Masters requires significant organizational investment. Organizations that succeed create the right environment and culture and put the right supports in place to develop and nurture a cadre of Strategy Masters across their company.

Let’s take a closer look at how these elements work to enable Strategy Mastery^TM.  

 

 

Strategy Mastery^TM  is built on a foundation that successfully combines three critical components: (1) a Learning Culture, (2) a “Doing” Environment, and (3) Coaching and Mentorship.

1 A Learning Culture: Akey core value of every organization that is successful in creating Strategy Masters is learning. A focus on learning enables an organization and its employees to take necessary action and risks, and to use knowledge to navigate more dynamically and successfully through these turbulent times. Enabling the value of learning is a commitment to openness and transparency across the entire organization. These important co-requisites open the door for learning by setting the stage for the safe two-way exchange of knowledge, insights, and best practices. When leveraged in a “doing” environment, learning accelerates the pace of strategy execution and results achievement for an organization.   

2 A “Doing” Environment: Strategy Mastery^TM requires a work environment that displays a bias for deliberate action. However, this doesn’t mean that thinking goes out the window. What it does mean is that thinking progresses rapidly to decisions which are followed by action. A “doing” environment is also pro-active in nature, taking action on what it takes to move the strategy, and the organization, forward as planned.

However, setting an expectation for an action orientation across an organization isn’t enough – it’s got to be backed up by organizational commitment to providing customized and appropriate support to individual employees AND a dedication on the part of leadership to providing the learning opportunities and feedback employees need to fine-tune and/or re-focus their actions and efforts (individually and as part of the organization).  

3 Coaching and Mentorship: Developing employees into Strategy Masters must be tackled both at the organizational level and by Managers and Supervisors working one on one with employees. Set in a culture that values a collaborative leadership approach that’s focused on engaging employees in the co-development and execution of organizational strategy, Managers spend time sharing the vision for Strategy Mastery^TM with employees and providing them with opportunities to practice Strategy Mastery^TM every day. By acting as coaches and mentors to their employees, Managers and Supervisors help all employees develop into Strategy Masters through a “learn by doing” approach. Taking this approach also allows everyone to benefit from the insights employees generate and share as they practice the craft of Strategy Mastery^TM.     

 

With this foundation in place, an organization has the positive environment in place that’s required to enable employees to translate knowledge of the organization’s strategy into action. However, this transformation doesn’t happen by magic – it requires two critical elements: (1) accurate and useable strategic knowledge, and (2) the development of the individual skills and capabilities required to take that knowledge and put it into action.

1 Knowledge Transfer and Translation: Once an organization’s high level strategy has been transformed into Functional Strategy, it’s time to take the next step: doing whatever it takes to make sure that the organization’s strategy is alive and active in the hearts and minds of every employee. This is often done through strategy communication town halls and other communication venues that usually share strategy from the organizational perspective. While this is a necessary first step, organizations seeking to create Strategy Masters must go further. Managers and Supervisors must repeat the strategy story and then engage employees in discovering and understanding the following:

● What our strategy is, what it looks like in action, and my part in it.

● How our team, and me as an individual, contribute to it every day.

● How I think I can contribute (expressed in my own words) and, as I understand our strategy better and practice working with it, how I KNOW I can contribute.

As employees talk about and develop a clear line of sight on these important topics, knowledge transfer and translation is taking place across the organization. Progress is made when employees understand organizational strategy AND can see themselves putting it into action in a meaningful way.

2 Individual Skills and Capabilities Building: While seeing oneself putting strategy into action is a necessary step in the journey to Strategy Mastery^TM, there’s often an execution gap. While employees are willing they may not be able. It’s not that they don’t want to take action, it’s that they may need new or more highly developed skills to do it. As a result, an important part of successfully translating knowledge of the organization’s strategy into action involves helping individual employees build the skills, capabilities, and confidence they need to make their contribution AND achieve their personal potential. It turns out that having many opportunities to apply and practice putting knowledge into action goes a long way to building employees’ confidence in their knowledge and abilities. Knowledge confidence stokes more confident action and decision-making – a key attribute of Strategy Mastery^TM that ultimately accelerates strategy execution success.

The good news is that traditional training programs aren’t the only way to achieve this goal. Coaching, mentoring, job shadowing, special project assignments, and job rotations are all excellent ways to help employees acquire the skills and capabilities they want and need.

 

When individual employees are able to effectively translate knowledge of their organization’s strategy into action they are well on the road to becoming Strategy Masters. However, there’s one additional ingredient that’s required to make the leap to Strategy Mastery^TM status: Individualization and Internalization. Composed of two elements (1) individual motivation – organizational motivation alignment and (2) strategy ownership and intrinsic accountability, individualization and internalization deepens an employee’s understanding of, and impact on, the organization’s strategy execution efforts, and the strategy itself.

1 Individual Motivation – Organizational Motivation Alignment: Quite simply, the greater the alignment between an individual’s beliefs, values, purpose, goals, and motivations and those of the organization, the greater the degree of synergy. Why this focus on synergy? Synergy is the key to creating employee investment in an organization. And employee investment that’s deep and personal is the critical ingredient in achieving Strategy Mastery^TM (and its benefits). 

To maximize synergy, organizations should pay attention to the employee-organization fit during the hiring process. “Hiring for fit” involves assessing the resonance between an individual’s beliefs, etc. and those of the organization. Hiring people who fit makes synergy a more natural outcome. However, the opportunities don’t stop there. The investments organizations make in the ongoing development of employees is important and the greater the degree of alignment between the development of the job skills and capabilities required to serve company needs and objectives, and the personal goals and objectives of individual employees, the deeper the synergy that’s created.

2 Strategy Ownership and Intrinsic Accountability: This is the final link between putting knowledge of the strategy into action and achieving Strategy Mastery^TM. Strategy ownership, and the development of intrinsic motivation and accountability for successful strategy execution, occurs when employees see themselves as co-owners of the organization’s strategy, experiencing a state of personal ownership for, and investment in, the achievement of the organization’s mission. When strategy ownership is truly felt, employees take personal, internally driven accountability for doing their part in, and discovering new ways of, putting organizational strategy into action.

When employees are invested this deeply, the organization’s success and their personal success are virtually one in the same, making every employee’s commitment to ensuring successful strategy execution personal and driven genuinely from the inside.

While it’s true that employees can be motivated extrinsically with rewards to translate knowledge of the organization’s strategy into action, the level of strategy execution success an organization achieves will be sub-optimal (AND it will take a lot of effort to achieve this result). In contrast, by just stretching a little further to nurture Strategy Mastery^TM  in every employee, organizations can harness the creativity and drive of everyone to achieve greater levels of strategy execution success than they ever could have envisioned.

 

Going back to thinking about the strategy execution model presented in my last blog post, here’s a picture that shows how the other elements in the model enable Strategy Mastery^TM to drive strategy execution success:

 

While much of what goes into producing Strategy Mastery^TM  isn’t “rocket science” it’s important to lay out all of the contributing drivers in one view and discuss how they work together to produce the organizational element that is most critical to ensuring strategy execution success - Strategy Mastery^TM. Until you put all the drivers together on one page, it’s easy to forget that (1) they must all be in place, and (2) must work together cohesively if you hope to create an organization full of Strategy Masters.

The biggest barriers in the journey to Strategy Mastery^TM success include the fact that it takes: a cross-functional view of organizational activities, a commitment to work together in all corners of the organization, and an investment in supporting the elements that produce Strategy Mastery^TM results.

There’s a lot to do and most organizations struggle to get all of the required drivers in place working just right.

 

So where should you and your organization start on this journey to strategy execution success through Strategy Mastery^TM? In my next blog post I’ll offer you a prioritized roadmap for putting this plan for strategy execution success to work in your organization.

 

How to Make Sure Your Public Sector Organization Is Primed to Deliver an Exceptional Stakeholder Experience Every Time

Assuming that you buy into the idea that there are mutual benefits to be realized when public sector organizations commit to providing an exceptional experience to their stakeholders, the next critical step is putting that commitment into action.

Rationally, we know that it’s not as simple as standing up in front of your employees and declaring that “Today’s the day we start giving our stakeholders a great experience every time they interact with us!” but that is actually what seems to happen in many organizations! The leader makes a declaration just like this and then expects the team to “make it so”.

However, of course, it’s not that simple but it can actually be relatively easy to achieve when you focus on three important elements that, when combined, work together to position any public sector organization to give its stakeholders an exceptional experience every time they interact with it.

 

1 Determine What an Exceptional Stakeholder Experience REALLY Looks Like

Before you can give your stakeholder a great experience you need to understand what that means, looks, and feels like for your stakeholder. While you may THINK that you know your stakeholder and what an exceptional experience is for them, you need to take the time to (1) identify all the assumptions you are making about what your stakeholder wants and values, (2) create an experience straw model, and then (3) validate that you’ve got it all right (i.e. your experience model AND all essential underlying assumptions).

The best way to do this is to check in with your stakeholder and talk with them until you understand which of the value-creating emotions they are looking for in their interactions with you. Most importantly, you need to understand what you must do to make your stakeholder feel pleased and happy as a result of their interactions with you. Once you think you know what these experience attributes are then you must put them into action and test out whether what you are doing is ACTUALLY making your stakeholder feel the way they want to feel as a result of their interactions with you. This often means going back and asking your stakeholder about their experience and, if relevant, exploring what specifically could be improved. Armed with this feedback, you must invest the time and effort needed to continually tweak what you do in an effort to perfect your organization’s ability to give your stakeholder an exceptional experience at every interaction with you.

 

2 Design and Resource Your Key Stakeholder Processes

Public sector organizations that excel at giving their stakeholders a great experience deliberately design their key processes to deliver the desired experience systematically and consistently. Processes that impact the stakeholder, including their various touch points with your organization, must be designed through their eyes. You can do this by leveraging your understanding of your stakeholder’s needs and expectations, and asking yourself “What feelings and emotions will this process or interaction create, and will that experience deliver value from the stakeholder’s perspective?” Smart organizations use the answers to this question to redesign existing processes so that they still do the job while ALSO satisfying the physical and emotional needs of their stakeholder.

Sometimes, however, it’s not good enough just to redesign a process. Often a process needs additional resources, supports, and infrastructure to run at peak levels of performance. For example, a better, more functional website might be required to make your organization easy to do business with (often a key stakeholder hope/expectation). You must be sure that your organization is ready to put the right resources behind your redesigned processes – without them your process redesign efforts will almost certainly be sub-optimized when it comes to having the desired impact on the stakeholder experience.

 

3 Empower Your Employees

While improving your stakeholder’s experience through stakeholder-centered process design is a must, it will only take you so far. Why? Well, first, when you design stakeholder-centered processes you are designing with the stakeholder GROUP in mind. When you interact with individual stakeholders you quickly discover that each one has unique needs and expectations. It can be virtually impossible to build your processes to accommodate variations in individual needs and expectations, however that is where your employees save the day! Your people play a critical role in making the deviations and decision necessary to deliver a positive stakeholder experience particularly when an individual stakeholder’s needs vary from what your process expects.

Your employees are also a very important piece in the stakeholder experience picture because, after all, it often takes human interaction to create and convey emotions and feelings. Even though you can design your processes to elicit feelings of being valued, trusted, and cared for (for example), it takes caring and empathetic employees with high levels of emotional intelligence to make the experience, and resulting emotions, come to life for your stakeholder. This is why it’s very important to employ stakeholder-facing employees who have an understanding of, and passion for producing, the type of stakeholder experience you are trying to create.   

To help passionate employees deliver an exceptional stakeholder experience they must be empowered to make the decisions required to give it to each and every stakeholder from interaction to interaction. Support your employees in making the right decisions for both your organization AND the stakeholder by:

● Spending appropriately on employee training that tells them about your stakeholder and the desired stakeholder experience;

● Showing them what that experience looks and feels like by providing examples and role models;

● Giving your employees the tools, technologies, and information they need to do the right thing;

● Reinforcing that providing an exceptional stakeholder experience every time is a priority and demonstrating its important through measurement and performance incentives; and

● Rewarding and recognizing employee actions that support a great stakeholder experience AND leveraging employees’ ideas on how to make the stakeholder experience even better.  

The result of this investment is a passionate and engaged workforce that is committed to, and adept at, delivering an exceptional experience to every stakeholder who interacts with your organization.

 

Many leaders in public sector organizations shy away from focusing on the stakeholder experience – largely because they don’t appreciate its importance in creating mutual benefits for both the stakeholder and the organization.  Others understand the importance and are ready to make the commitment – they have the will but are unsure about how to deliver the desired stakeholder experience.

Public sector organizations that are recognized as being stakeholder-centered have made an organizational commitment to the stakeholder experience - both in their values and in the steps they take to put that commitment into action. Furthermore, they realize that maintaining a focus on delivering an exceptional stakeholder experience is an ongoing commitment that never ends. Why? Because stakeholder needs, expectations, and what they are looking for in an experience changes over time AND the ways in which organizations can deliver those experiences, particularly when technology is a key factor, continues to evolve over time as well.

 

Has your public sector organization made the commitment to deliver an exceptional experience to every stakeholder? Are you taking the necessary steps to put your commitment into action? What do you need to start doing to get on the path to making your public sector organization a stakeholder-centered organization?

 

Leverage these three essential elements and get started today!

 

How to Make Your Stakeholders Love Your Public Sector Organization (and Why It Matters)

A great deal of research has been done in the private sector into what attracts customers to companies and the secrets for creating loyal customers. Numerous investigations have shown that a customer’s perception of any given company and their brand is built on two components:

 

1 The functional aspect of the business - that is, what they do or provide (i.e. their products) and how the do/provide it (i.e. service), and

 

2 The emotional aspect of the business – that is, how the customer feels interacting with the company and using its products and services.

 

Interestingly, research has further revealed that these two aspects are NOT equally weighted in the customer’s mind. In fact, the emotional component has been found to play a significantly greater role in differentiating a company in the marketplace and attracting customers than the functional components and offerings do.

Successful for-profit companies have figured this out and, while they know that they must excel in the functional aspects of their business, their strategy for success and market leadership is actually focused on developing and delivering the emotional aspects of their business to the customer.

Importantly, it’s been discovered that companies that focus on differentiating predominantly on functional attributes receive only temporary levels of loyalty from their customers. That is, their customers leave them as soon as a new competitor, offering a similar product with functional enhancements or greater benefits, such as a lower price, comes along. In contrast, differentiation on emotional attributes has been found to generate true, long-term customer loyalty. Customers who have an emotional connection with a company tend to stick with that company even when a newer and functionally enhanced product or service option comes along.

 

In short, focusing on the customer’s emotional experience builds levels of customer loyalty that enable sustainable business growth and success.

 

With all this understanding of the importance of the customer experience, I often wonder why some public sector organizations still seem to treat the stakeholder experience like a frill while most seem to ignore it all together.  

My only conclusion is that many public sector organizations don’t see stakeholders as customers and don’t consider stakeholder loyalty to be a necessary part of their business equation. Also, I think that many public sector organizations operate like they are the only game in town ( in many cases they are) carrying on with the mindset that stakeholders have no option but to deal with them regardless of the experience or their level of satisfaction.

However, even when this is the case, there’s just no excuse for this attitude because, quite frankly, creating stakeholder loyalty is a necessary component of every public sector organization’s “social license to operate”.

 

When astute public sector organizations do focus on creating and delivering an exceptional stakeholder experience they are actually able to do their work more efficiently – largely because when you treat people with care and respect they are more likely to work with you rather than against you in interactions. In addition, happy stakeholders approve the execution of your mandate more willingly and with greater support. And it’s difficult to argue against the fact that smoother and more efficient operations result in better outcomes for all stakeholders including a less stressful work environment for employees.

What public sector organization wouldn’t want to enjoy benefits like these?

The good news is that they can be achieved by public sector organizations that place an emphasis on delivering an experience that their stakeholders value.

 

Let me give you a real-life example to show you what I mean.

 

Last week I had to fly out of Pearson Airport in Toronto. I’m sure that I’m not alone in disliking the security experience at airports. As recently as five years ago, going through security at YYZ was a painful experience complete with a gauntlet of serious and surly officials. Bad security line management and unsmiling personnel made going through security the necessary evil that we all had to grudgingly endure for safety’s sake.

Now, CATSA (the Canadian Air Transport Security Agency) could have kept chugging along this way but a few years ago I started to notice a change. Their security people were becoming much more friendly and pleasant to deal with. So much so that my experience last week was beyond exceptional! I was initially met by a smiling officer who scanned my plane ticket and wished me a pleasant day as I entered an extremely fast moving and efficient line of travellers. That was nice I thought but I reserved judgement as it could have been one person having a great day. However, as I proceeded through the line and the security checks I was repeatedly greeted with friendly and smiling people who made eye contact with me, were polite and helpful, and who wished me a great day at every opportunity! By the end of my security experience I was energized and happy and walked away confident that the CATSA officers had done a thorough job while also treating me with respect and care.

 

I actually felt that everyone on staff had made it their personal goal to make my time with them the best part of my entire day! Now that’s remarkable. In fact, I actually remarked “WOW - that was great!” as I walked away from the security checkpoint.

How many times do you hear people saying that after they go through security in an airport?!

 

By giving me an exceptional experience, CATSA provided me with value, however, the value is actually shared. By treating me with friendliness and care I was more relaxed and committed to working with officers to get through their security process. Having the public work with, rather than against you, enables your public sector organization’s efficiency and actually creates greater capacity to focus on critical operational elements. A calmer, happier, and more efficient environment is better for employees which almost certainly improves employee satisfaction, happiness, and engagement.  As a result of this fabulous experience, I won’t dread the security lineup next time and will be happy to work with CATSA officials to achieve our mutual objective – a safe flying experience.

 

However, the key to sustained success for CATSA will be to deliver the same remarkable experience the next time I interact with their personnel and processes. I expect they will.

 

While CATSA (and all airport security agencies around the globe) could have ignored the public’s experience (because – hey – what are we going to do? - if we want to get on a plane, we are at their mercy), they have made a focused effort to realize the mutual benefits and shared value associated with building an exceptional stakeholder experience into their strategy and day to day operations.

 

So - given all this, I have some questions for you: 

Is an exceptional stakeholder experience a key component of your public sector organization’s strategy and way of working? Why or why not?

What mutual benefits could your organization and your stakeholders enjoy if you did place greater importance on delivering an exceptional stakeholder experience? What kind of experience would your stakeholders value and what would you have to change to give it to them?

 

I hope that you’ll take this opportunity to explore the answers to these questions for your public sector organization. Your stakeholders will thank you!

 

 

In my next blog post I’ll explore what it takes to put a focus on the stakeholder experience into action in your public sector organization.  

    

What the Canadian Healthcare System Could Learn from the Two-Sided Business Model

Every time I work with entrepreneurs I have the opportunity to see new and innovative business models. However, one that I see more frequently than ever is the two-sided model where there are: users who access basic technology/platform functionality for free/as a “freemium”, and other interested parties who pay a fee to access and/or monetize this user base.

The two-sided business model frequently crops up with technology enterprises and platforms.

Examples of this type of business model in action can be seen with online platforms such as Twitter or LinkedIn. While these platforms don’t monetize users at the basic level (LinkedIn does give users a chance to pay a fee to receive added/premium service and platform functionality), the free user is a critical part of the business model. That is, without these non-paying users, the platform can’t attract a paying “user”, often in the form of advertisers. Basically, the larger the freemium user base, the more attractive the platform is to the advertisers who, for a fee, have the opportunity to get their message in front to a high number of people.

While there are other ways that these platforms can monetize their user base/the freemium model, making money from marketing potential and sales opportunities is by far the approach I see used most often.

The fact that this business model relies on two very important groups of participants is what makes it “two-sided” – and interesting.

 

An important question with the two-sided business model is: Who exactly is the customer? Is it the freemium user (who isn’t generating direct revenue for the enterprise) or the payer (the entity/company that’s paying money to have access to the user base)?

Your initial response might be “the user with the money” of course! But is it? I ask because, without a big user base, the platform just isn’t as attractive to those people and organizations who might be interested in paying to have access to them.  

There may not be a right or wrong answer in this one but whatever your answer is, it will drive your behavior towards the different parties in the model. Let’s explore this a little more.

The desire to monetize a platform and base of users can lead some technology enterprises to think twice about who their primary customer is. For example, in November 2014, Instagram introduced advertising to the previously ad free platform Canadian users enjoyed. With that move, you might have wondered whether Instagram had shifted away from focusing on their users to thinking of advertisers as their true customer. Since I don’t have any inside knowledge, I can’t say for sure. The only thing we do know is that Facebook (who had purchased Instagram in 2012) was looking to start monetizing its investment with this move.

Another important question to ask is – does there really have to be only one “customer” in the two-sided business model? In other words, could we keep all participant groups equally in mind in the design and functioning of the model and platform?

In my experience, trying to go this route can be very problematic because different customer groups often have conflicting wants and needs. It can be virtually impossible to satisfy all equally well unless you can identify significant common ground between your various customer groups and then leverage the commonness in the services you provide.

However, this can be difficult to do effectively.

Based on my observations, most businesses leveraging the two-sided model successfully lean towards thinking about the free user as the primary customer. While they do make it relatively easy for paying entities to access the free user base, the rules of engagement these platform providers put in place are generally there to preserve the functionality and experience that the freemium user enjoys.

For example, when Instagram introduced paid advertising to its platform it made sure that the ads fit with the existing look and feel of Instagram – in other words, ads had to work within the users’ current experience on the platform. In addition, Instagram gave their users control over what ads they continue to see in their feed, giving them the ability to turn off an ad campaign and avoid seeing future ads in that campaign. Through these actions, Instagram has effectively deemed the free user to be their primary customer.

Thinking of the freemium user as the primary customer, while helping a paying “user” to access them according to established rules that are focused on optimizing the customers’ experience, may seem a little counter-intuitive but it actually does benefit the paying user in the end. Why? Because the more people that can be retained in, and added to, the freemium user base, the greater the potential for realizing the results the paying user desires.

The bottom line? In the most successful two-sided business models, the free user is considered to be the primary customer and critical business decisions are made with the primary customer/free user in mind. That being said, the payer is also top of mind and every effort is made to ensure that they get the opportunity to benefit through these customer-focused business decisions. By keeping the non-paying users’ interests in their sights AND playing by specific rules that effectively deliver value for both parties, the system in the two-sided business model is orchestrated to deliver a win-win result for users AND payers.

 

In fact, it turns out that this is the golden rule underlying all successful two-sided business models.

 

So, what does all this have to do with Canadian healthcare organizations and how might the lessons apply to our healthcare system itself?  If you look at it closely, I think you might agree that our healthcare system mimics the two-sided business model in many ways.

The “free users” are all citizens who participate in the system. And while we as citizens are also payers into the system, it’s a bit arm’s length. What happens in practice is the provincial and federal governments act in the role of the administrator/payer in the system on our collective behalf.

So, as any high-functioning two-sided business model would, a good place to start with our healthcare system would be to agree on who the primary customer of the system truly is.

Since there’s a growing focus on being more patient/person centric in our healthcare system, we might conclude that it’s the patient. However, there’s a great deal of tension amongst the players in the system. Sometimes words, policy, and actions conflict, giving mixed messages at best. As a result, the answer to this question is still unclear.

A good place to start with our healthcare system would be to agree on whether or not the patient truly is the primary customer.

With the primary customer question settled, what if our healthcare system adopted some of the success strategies from the two-sided business model and put a real focus on optimizing the functionality and experience the patient (assuming they ARE the primary customer) gets from the system?

What if THIS imperative was at the center of every decision and action the system, as a collective, made?

And what if, like in every successful two-sided model, we also tried very hard to ensure that the other parties in the system achieved commensurate benefits along with BUT not at the expense of the primary customer?

Impossible you might say but I think that it’s time to give it a try.

The two-sided business model approach may just hold the key to optimizing patient care and the patient experience while ALSO effectively managing system costs and delivering other important benefits the various key participants in the healthcare system are seeking.

In other words, if we are open and innovative we may be better positioned to find the win-win scenario our healthcare system needs for long-term success and sustainability.

It won’t be easy – in fact, it will require some really open (and likely difficult) discussions and new ways of thinking.

However, by looking at the other successful business models that exist out there, such as the two-sided business model, AND committing to taking a business model-based approach to re-engineering and improving our healthcare system, I think that we might just be able to get the Canadian healthcare system back on the road to recovery in a way that delivers the health outcomes, quality of care, efficiency, and value for the money benefits we’re all looking for.

What do you think?

 

How to Build the Triple Aim into Your Healthcare Organization’s Strategy Map

Many healthcare leaders will be familiar with the concept of the Triple Aim. To summarize, the Triple Aim is a framework developed by the Institute for Healthcare Improvement (www.ihi.org) that outlines an approach to optimizing health system performance.

 

The foundation of the Triple Aim is the belief (supported by evidence) that effective, sustainable healthcare and healthcare systems must pursue three dimensions simultaneously. These three dimensions include:

● The patient experience of care (including quality and satisfaction),

● The health outcomes produced, and

● The productivity of the system and the costs of healthcare.

The value of the Triple Aim approach is that it reflects the current reality for healthcare systems around the world – the struggle to effectively balance the need for an affordable or profitable healthcare system with a quality patient experience and the achievement of optimal health outcomes.

 

By keeping the three critical elements of the Triple Aim in their sights at all times, healthcare organizations are better positioned to:

(1) Make the fact that the three elements, and the balance between them, are key to the organization’s strategy and business model transparent to all,

(2) Effectively manage the inevitable tradeoff decisions required in all healthcare organizations,

(3) Be alerted when an over-emphasis on one element of the Triple Aim is having a negative impact on another element, and

(4) Determine what optimal “balance” between each of the three elements of the Triple Aim looks like for the individual organization at any given point in time.

 

The great thing about the Triple Aim concept is that it can be applied to the healthcare system broadly or at the enterprise level. With this in mind, individual healthcare organizations can apply the Triple Aim framework to their strategy and business model.

One of the best tools available for capturing both an organization’s strategy and business model is the strategy map. Since it is both a strategy formulation AND strategy execution tool, organizations can use a strategy map to design, communicate, and manage the successful execution of an organizational strategy that will produce Triple Aim-based results and outcomes.

Let’s take a high level look at how you can build the Triple Aim into a strategy map for your mission-oriented/publically funded healthcare organization or hospital. Leveraging the strategy map format typically used in these types of organizations, here is an example of what this strategy map is likely to include.

 

Recall that the top/stakeholder perspective of the strategy map is designed to address the question: “To achieve our mission and vision, deliver our stakeholder promise, and provide/create value, what do we need to do for/deliver to our stakeholders?”

The convenient thing about the Triple Aim is that it’s the foundation of a quality healthcare system AND delivering Triple Aim outcomes satisfies the primary needs and expectations of key stakeholder groups (delivering stakeholder value as a result).  Patients, the community, citizens, and funders share an interest in providing individual patients (and their families) with a quality care experience and producing better individual and societal health outcomes - all in a way that gets the most out every funding dollar (allowing the system to delivery more for the same amount of money). As a result, three strategic objectives, each one focused on a specific element of the Triple Aim, can be sufficient for the stakeholder perspective of your strategy map. Of course, the actual strategic objectives on your healthcare organization’s strategy map will be customized to reflect your choices in applying the elements of the Triple Aim to create value for your stakeholders’ unique needs.

 

Once the objectives of the stakeholder perspective have been set, the remainder of your strategy map is defined to depict the value chain that supports the achievement of Triple Aim strategic objectives.

The strategic objectives in the internal process perspective answer the question: “To give our stakeholders what they want/expect and achieve our mission and vision, what processes must we focus on and excel at?”  Our sample strategy map outlines the critical components and processes, in both the clinical and operational dimensions, typically required to support the achievement of Triple Aim objectives. While the strategy map for your healthcare organization may include some or all of these objectives and/or more, the key is to identify the short list of processes required to deliver your desired stakeholder objectives and outcomes. Taking this step helps you (1) identify which clinical and business processes your organization must have in place to achieve Triple Aim results, and (2) allows to measure and manage the performance of the business processes that ensure the delivery of stakeholder outcomes and value.

 

The organizational capabilities perspective of your strategy map answer the question: “To produce the stakeholder results we desire and to excel at our critical processes, (1) what kind of culture do we need, what skills must we help our people develop, and how do we want to work together; (2) what is the nature of our service and care delivery partnerships and relationships and how must we work with others across the continuum of care, and (3) what types of data/information, tools and technologies must we have access to and how must we use them?” These strategic objectives form a critical foundation for the upper portions of your organization’s strategy map – their specifics will be customized based on the choices you have made in the previous perspectives.

 

While the financial/resource management perspective of the strategy map supports the achievement of all the other strategic objectives on your strategy map, it plays a very important role in enabling the achievement of the productivity/financial performance element of the Triple Aim. Strategic objectives in this perspective answer the question: “To create and deliver value to our stakeholders and achieve our mission and vision, how must we use our financial and non-financial resources and ensure that we do it in the most optimal way?” Strategic objectives focused on resource utilization support optimized clinical and operational process performance and enable the achievement of the Triple Aim’s productivity outcomes. A focus on strong financial management produces desired financial performance results AND builds the confidence and trust of funders – an important stakeholder outcome for publically funded healthcare organizations.

 

Building the Triple Aim into your healthcare organization’s strategy and business model via the strategy map is an important step you can take to ensure that your organization will achieve the desired results for most healthcare organizations - high quality healthcare outcomes for individuals and the system, cost-effectively and sustainably over the long-term.

Leverage the sample strategy map provided here to create a strategy and business model for your healthcare organization that is crafted to respond to the unique needs and expectations of your various stakeholder groups. By building your healthcare organization’s strategy and business model around Triple Aim concepts, it will be well positioned to create and deliver the value stakeholders need from your organization, other healthcare institutions and the broader health system itself. 

    

Collaborative Strategy – Smart or Dumb CEO Move?

The primary premise of collaborative strategy is that giving everyone in your organization a seat at the strategy table delivers huge benefits – to senior leadership, the organization (in the form of better business performance), your customers and stakeholders, and your employees themselves. The outcome of a collaborative strategy approach is a more relevant, actionable strategy that will actually be accomplished in a very effective and efficient manner.

Collaborative strategy, unlike the traditional, top-down strategic planning approach, improves both the strategy creation AND strategy execution processes - and the outputs they produce. While we seem to have convinced ourselves that we (business leaders and executives) excel at creating strategy (in my experience, I’m not sure about that), most people are in agreement that successful strategy execution is one of the biggest challenges businesses continue to face today. Fortunately, a collaborative approach to strategy improves performance and results in both phases of the strategy management cycle.

So – if collaborative strategy is such a powerful approach, why isn’t it embraced by CEO’s more often? I think that it’s because, as some business commentators have pointed out lately, many believe that a collaborative approach to strategy is the sign of a lazy CEO.

People who argue this position point out that, since it’s the accountability of the CEO to solely lay out the vision for the organization (really?), only a small number of qualified (READ: senior level) people need to participate in the strategic planning process (ok….). They seem to equate involving lots of people in the strategy development process as creating strategy “by committee” – a true sign (they claim) that a CEO is sidestepping their visioning/leadership accountability. Eventually, proponents of this line of thinking get to: involving a wide number of people in a meaningful way in the strategy process = a weak CEO/leader.

 

Huh???? How exactly did we get to that conclusion anyway?

 

Contrary to popular thought, I actually believe that taking a collaborative approach to strategy is the sign of a smart and progressive CEO – let me show you why.

 

Successful use of a collaborative approach to strategy is built on the foundation of a new approach to strategy governance – it requires a fundamental renovation of an organization’s strategy governance model itself. Just to be clear, every organization should have a clear strategy governance model that outlines who participates in the strategy management process, in what way, and with what authorities.

Traditional strategy governance models tend to give most of the strategy roles and authorities to entities like the Board, the CEO, the Executive team, and, maybe, senior managers. Roles include creating and exploring strategic options and developing strategic directions. A typical CEO role is ensuring that the strategy is put into action while the Board is assigned the role of overseeing that the strategy is producing the desired results. Typical accountabilities of the CEO and the Board include making strategic choices that maximize business results while sufficiently managing risk and finalizing strategic directions.

This isn’t an exhaustive list – just some examples.   

Traditionally, other stakeholders like customers, business partners, and employees rarely show up in the governance model in roles other than receiving the strategy and putting it into action (employees) or receiving the results and outputs that come from strategy execution (customers).

It’s frankly easier for CEO’s to stick with this traditional, status quo approach to strategy governance.

However, the status quo governance model doesn’t adequately support collaborative strategy. And, more importantly, the traditional strategy governance model doesn’t suit today’s modern world where stakeholders and employees actually want to be more engaged and have a real say in what matters to them.

It takes courage, effort, and a new approach to strategy management (one that shares the roles and accountabilities for strategy creation and execution more widely, and actively engages others in the process) to make collaborative strategy work. In my experience, not every CEO is prepared to make the necessary changes (maybe it’s just easier to discount the collaborative strategy approach rather than admit that you are unwilling or unable to change). But I digress….

 

Quite simply, a strategy governance model that supports collaborative strategy distributes strategy management roles and authorities across a wider range of participants. The key is to leave the right roles and accountabilities with the CEO and the Board (i.e. setting critical organizational boundaries and finalizing strategic choices and directions and the associated business model) while sharing and/or assigning remaining strategy roles and accountabilities to others inside (and even outside) the organization. The secret is to effectively balance the perceived business risks with the advantages realized by involving more people in your strategy and business performance management AND decision-making processes. 

There’s no doubt that this new approach to strategy governance requires new CEO leadership skills such as influencing and persuasion, listening, questioning, and remaining open to doing things in a way you might not have thought of yourself. You also have to be prepared, when required, to make the harddecisions and then explain the “why’s” to the people at the strategy table. However, when collaborative strategy is clearly practiced within a shared strategy governance model, playing this new CEO role isn’t that hard because it’s expected and accepted by everyone involved.

 

The fact remains: To realize the power of collaborative strategy you’ve got to share power.

 

Regardless of what the business commentators and pundits say, collaborative strategy is the right approach for a new and dynamic world. However it cannot thrive within the traditional strategy governance model - you’ve got to renovate your organization’s approach to strategy management before embracing collaborative strategy. Moving forward without doing so is what I would call the dumb CEO move.

However, when you lay the right groundwork first, adopting a collaborative approach to strategy is quite possibly the smartest move any CEO will ever make.

 

How to Integrate Value for Money Thinking into Your Healthcare Organization’s Culture

Value for money (VfM) thinking is an important “new” imperative that healthcare organizations must build into their organizational skill set. However, before launching into this post, let’s be clear that I am not suggesting that, in response to this new requirement, you should create an exclusively VfM-oriented culture in your healthcare organization. Safety and patient care quality, for example, are also important in a successful healthcare institution. So is knowledge translation and a culture of inter-professional learning and care.

It really turns out that integrating VfM thinking into your healthcare organization’s culture is the next strategic requirement you are facing as a healthcare leader.

Whether it’s safety, quality, or VfM, every organization essentially has two options when it comes to producing the desired results – they can take a program approach (i.e. a core group of experts designs and implements top down initiatives relating to the topic or discipline at hand) OR they can work to build the desired element into the way their organization and people work every day.

While every organization will achieve a certain degree of success by taking the program approach, the data shows that more sustainable results are achieved when the people who are doing the work internalize the objective/topic/discipline and apply it in their thinking and through their actions and decisions on the job every day.

I’ve seen this effect myself when it comes to hand hygiene efforts in hospitals. While Infection Control groups can design a sophisticated program of information, alerts and reminders, and compliance results reports that is launched simultaneously across multiple hospital floors, better results/compliance and outcomes are achieved when healthcare professionals, staff, and infection control experts collaborate to attack the issue and develop a home grown program that is their own and that they can implement together – and, perhaps most importantly, share enthusiastically with their peers.

 

So we know which approach works better – why then don’t we implement it more often?

In my experience, it’s usually because it’s perceived as being too hard and time consuming. And, to be honest, people simply don’t know where to start.

So, with this in mind, let’s explore a proven model that will support a sustainable VfM-focused culture (or any kind of strategically important culture) within your organization.

Here’s the model:

 

Let’s begin with the center elements in this picture.

Successfully building a culture of anything that’s important in your organization is essentially about building shared ownership.  In the case of VfM, your goal is to build a climate of shared ownership where the intent and necessary supporting values and beliefs are embraced by all, and the actions embodied by VfM thinking are demonstrated in the work and business decisions employees and executives complete every day.  

Under a model of shared ownership, employees and business leaders fully understand, internalize, and commit to the spirit of and intent behind the element under consideration. When people are connected to, and feel very deeply about, something (such as ensuring patient safety or maximizing value delivery, for example) they take their roles and responsibilities very personally – so much so that they choose their words and actions carefully with the purpose being to bring those imperatives to life every day in their work.

This deep commitment is visible to all through the things people choose to work on, the utility and creativity of the solutions they create, and the value realized through the business decisions they make. Employees and business leaders do what they do not because it’s expected or required of them but because they care passionately about what they are doing, the contribution they wish to make, and the results and outcomes they want to contribute to producing by living and acting a certain way.

This is what shared ownership looks like in action. And, ultimately, the foundation of a strong culture in any organization is a state of shared ownership.   

However, before going any further, let’s stop and talk about who should be included when we define the “group” that is sharing ownership within our model. Your first response might be that, since we are talking about your organization’s culture, the “group” would naturally include your employees and executives/business leaders. While I agree that these are the core participants in any organizational group, forward thinking organizations are realizing that their boundaries are increasingly becoming blurred.  Stakeholders are having a greater say in shaping the organizations that serve them (witness the greater involvement of patients in hospital management processes and decisions) and partners are becoming a critical part of the service delivery chain.

As a result, stakeholders and partners should be included in your model of shared ownership.

 

It’s important to realize that shared ownership is both an outcome of and a mechanism for integrating VfM thinking into your organization’s culture. 

As a mechanism, shared ownership means that all the relevant players are actively involved in developing a clear vision for the elements of value being considered in any VfM assessment as well as your organization’s overall objectives for applying VfM thinking to its work and business decisions. Shared ownership as a mechanism also means that everyone participates appropriately and pro-actively in defining and applying your VfM approach and framework in working situations.

The act of working together in this collaborative way to bring VfM thinking into practice produces greater feelings of shared ownership across your organization. In this way, shared ownership is also an outcome of your organization’s culture.

 

While shared ownership is the key requirement for integrating VfM thinking into your organization’s culture, there are four critical enablers that must be in place if your organization’s cultural transformation is going to be successfully achieved. These include:

 

Collaboration, Dialogue, and Knowledge Sharing

First and foremost, you must give your employees, business leaders, partners, and interested stakeholders a seat at the VfM “table” and make them true partners in defining, applying, and refining your VfM approach, processes, and framework across your entire organization. Without taking this step of establishing a level playing field and creating the opportunity for everyone to engage, you will be unable to lay the foundation for shared ownership.

 

Active and Committed Leadership

Many people would say that this is the most important enabler as you strive to integrate VfM thinking into your organization’s culture. To achieve success, executives and business leaders must be as committed to VfM efforts as they want everyone else in the organization to be.  Active leadership needs to include walking the talk. Do this by actively participating in your organization’s VfM efforts and making the shared ownership mindset transparent and obvious through your interactions with people across the organization. 

 

Training, Learning, and Continuous Improvement

To achieve the successful integration of VfM thinking into your organization’s culture you must ensure that everyone has the training and learning experiences they need to make their fullest possible contribution every day to your VfM efforts. It’s also important to enable your employees, business leaders, partners, and interested stakeholders to use this knowledge to help make your organization’s VfM approach and results even better.

 

Tools, Technologies, and Infrastructure

Instilling a VfM culture, including the levels of shared ownership you wish to create, won’t happen on its own. You’ve got to invest in and implement the infrastructure, tools, and technologies employees, business leaders, partners, and interested stakeholders need to connect and play their role in your VfM efforts. Putting these resources in place ensures that all of these players can get to the VfM table and make an optimal contribution to your VfM processes, activities, and efforts – no matter where they are inside (or outside) your organization.

 

Intuitively, it’s easy to understand that taking a collaborative, shared ownership approach to integrating VfM thinking into your organization’s culture is best for sustainable success. Practically, implementing this model does require some upfront and sustained investment, however, you and the members of your organization will be rewarded with high levels of efficiency, greater levels of meaningful engagement, and better results and outcomes from your VfM efforts.

The model outlined here provides you with an excellent implementation roadmap that will guide your organization to where you ultimately need to go. And, while it’s important to implement all elements of this roadmap over the long run to achieve the organizational transformation you require, simply getting started OR taking your current efforts to the next level doesn’t have to be that difficult.  

Just commit to implementing one or two parts of the model and see where that takes your organization on its VfM journey. I think that you’ll be surprised with the transformation you’ll see.

 

Tips for Measuring Value for Money in Healthcare Organizations

Value for Money is an important concept that is receiving increased attention in the healthcare sector - the sense of urgency around demonstrating value for money continues to accelerate for Canadian healthcare organizations.

This heightened focus has triggered a closer look at what we really mean when we talk about ensuring value for money (VfM). While some limit their perspective on VfM to the financial elements of a transaction or investment (including an evaluation of the associated elements of economy, efficiency, and effectiveness), others have advocated for a broader perspective that includes integrating other important elements (such as strategic fit, potential health outcomes, and implementation risks) into the framework for thinking about value for money. To learn more about VfM concepts, please click HERE to read a previous blog post on this topic.

While the increased emphasis on achieving value for money has stimulated deep thinking and discussion among healthcare leaders, it has become critical for healthcare organizations to demonstrate that they are achieving optimal value for money. Of course, the usual way of doing this is through evaluation and assessment – particularly because governments and funders are looking for evidence that value for money is being achieved by the healthcare organizations they support.

So, how can your organization measure and demonstrate that it is achieving value for money? Let’s take a closer look.

 

Deciding What to Measure 

It turns out that there are a range of measures and tools that organizations can use to assess the cost savings and economic effects component of a broader value for money framework. However, the tools used will depend on the situation, the perspective of stakeholders, and the question organizations wish to ask/answer through their assessment of VfM.

With this in mind then, your starting point for measuring VfM is to answer a few important questions – this will help you determine what process, measurement methodology, and measures you should contemplate using. Here are the key starting questions suggested in the article “Evaluation Methods for Assessing Value for Money”:

 

1 How are we defining value in this situation? From who’s perspective? Who is going to decide on what value looks like/includes? (remember that the assignment of value is a very subjective thing and that the perception of value can vary from stakeholder to stakeholder, across time and location, and from situation to situation. Before you can think about measuring value for money you must be clear about what constitutes “value”)

 

2 What is the purpose of measurement? (more on this shortly)

 

3 Are we evaluating the value of one project/option/ solution/opportunity or are we comparing several to each other?

 

4 Is value being evaluated in monetary terms only or will we use a broader definition that may or may not include a proxy measure of value?

 

5 Will our evaluation process make sure that we have agreement on the costs and benefits used for our calculations? How will we do that and how will we ensure that the calculations are transparent?

 

6 Will our assessment process be used to engage and promote participation by stakeholders? Will we use measurement and results to promote and demonstrate our accountability to stakeholders?

 

With the answers to these questions in hand, you will be in a position to select the most appropriate evaluation methodology for the cost evaluation portion of your value for money assessment/ measurement.

Here are some examples:

 

Purpose   of Measurement	Suggested   Methodology
Compare   alternatives that aim to achieve the same goal/outcomes	Cost   Effectiveness Analysis
Compare   alternatives that aim to achieve different goals/outcomes	Cost   Benefit Analysis
Want   to determine whether benefits outweigh the costs	Cost   Benefit Analysis
Want to   consider individual stakeholder preferences	Cost   Utility
Want   to consider social costs	Social   ROI
Compare   the impact and performance of each program/solution relative to other   programs/solutions	Basic   Efficiency Resource Analysis and Rank Correlation

 

To see a description of each measurement methodology, and the advantages and disadvantages of each one, please read the article “Evaluation Methods for Assessing Value for Money”.

Once you have finalized your measurement methodology, you are ready to move forward.

 

Deciding When to Measure

The key question here is should you, as a matter of your usual practice, measure VfM pre- or post-decision and implementation of the program/option?

Some healthcare leaders advocate using value for money measurement as part of the decision-making process which includes building the completion of a VfM framework right into the decision-making process.  This makes a lot of sense as it can pro-actively ensure that your organization’s business decisions are driving optimum value.

Others opt to assess whether optimal value for money was achieved after the fact – this is the thinking behind value for money audits that are done by an organization itself and/or by the funder. While auditing limits your ability to correct past decisions, it does enable learnings that can be applied to future decisions with VfM implications.

I would recommend a dual approach that builds a VfM evaluation into the business case/decision-making process and then validates whether the projected value was achieved post implementation.   Doing this helps healthcare organizations make better decisions, based on validated VfM criteria, up front. And the learnings from the VfM audit process can be used to improve the VfM evaluation process (including the criteria used and the organizational skill level related to VfM assessment). The outcome of the dual approach should be improved organizational ability to make better, more efficient business decisions with the confidence that implementation will deliver the expected optimal value for the money.

 

Building Your Organization’s Capability to Measure VfM

Any healthcare organization that wishes to make value for money measurement part of its regular approach to business decision-making and management absolutely MUST implement three essential elements – without organizational capability regarding value for money assessment, efforts to measure and leverage value for money performance results will be sub-optimal.

 

1 A consistent framework and set of criteria

You need to establish a commonly understood framework to assessing value for money that is highly flexible and sensitive enough to accommodate appropriately and responsively to the varying nature of the definition of value.

 

2 Organizational skills and capacity

The people who are participating in value for money evaluation processes need specialized skills including financial analysis capabilities, an understanding of your business environment and business strategy, and strategic thinking. You must be prepared to invest in building these important skill sets and you must ensure that people have the time to focus on VfM assessment activities.     

 

3 An effective and efficient approach to process completion 

Evaluating VfM as part of your organization’s business decision-making process doesn’t have to take a long time however it’s important to do it right. Many organizations choose to make their VfM evaluation process participatory in nature with a representative group of employees and stakeholders taking part in the process. Benefits of this approach include higher quality inputs and discussions, greater transparency in decision-making, and more realistic assessments of value for money outcomes.

 

To learn more about how a framework for VfM was used at the National Health Service, click HERE.

 

While realizing your goals for your value for money measurement efforts doesn’t have to be difficult, it’s important to approach the task in the correct way, allowing you to create and nurture a solid foundation for success. Being clear on your purpose for measurement and developing a consistent but flexible framework for assessing value for money, that uses the right metrics for that purpose, is a critical element for getting the most out of your VfM assessment processes.

However, equally important is building an organization that is ready, willing, and able to participate in, and leverage, value for money assessment processes and results when making regular business decisions.  In fact, having this innate organizational capability is what sets the leading healthcare organizations apart. How do they create this capability? That’s the topic for my next blog post.

 

References

To learn more about how to measure Value for Money, check out the articles leveraged for this blog post:

“Measuring Social Value” Geoff Mulgan, Stanford Social Innovation Review, Summer 2010,   http://www.ssireview.org/articles/entry/measuring_social_value

“Evaluation Methods for Assessing Value for Money” Farida Fleming, October 2013, http://betterevaluation.org/resource/assessing-value-for-money