BY: MARK G. TOZZIO, GARY L. ROWE, ROBERT R. COOK, & JOHN R. GRIFFITH
Mr. Tozzio is senior vice president and Mr. Rowe is president and CEO,
St. John's Regional Medical Center, Joplin, MO; Mr. Cook is corporate vice president,
strategic planning, Catholic Health Initiatives, Denver; and Mr. Griffith is
Andrew Pattullo Collegiate Professor, Department of Health Management and Policy,
University of Michigan School of Public Health, Ann Arbor.
In mid-1998, St. John's Regional Medical Center, Joplin, MO, found itself
in a financial crisis. As a result, St. John's board of directors and its parent
system, Catholic Health Initiatives (CHI), Denver, were forced to make a set
of critical decisions to avert economic disaster.
To recover its market dominance, St. John's new leaders obviously needed to
launch and carry through a major turnaround initiative. In this article, we
describe how that was done.
Background to a Crisis
St. John's is a full-service, tertiary-level rural health care system with
392 inpatient beds, comprehensive outpatient diagnostic and treatment services,
and approximately 2,000 clinical and support staff. St. John's operates two
hospital facilities: the main medical center, in Joplin, and a small critical
access hospital in southeast Kansas.
In southwestern Missouri, the Joplin facility serves approximately 157,000
residents. Altogether, however, the hospital provides tertiary care services
to some 700,000 residents of a 19-county region that also covers parts of three
other states: Arkansas, Kansas, and Oklahoma. In 1996 St. John's became a member
St. John's is the regional leader in cardiovascular, oncology, orthopedic,
and trauma services, with approximately 18,000 patient admissions and 142,000
outpatient visits annually. In fiscal 2002, its net operating revenue exceeded
$228 million. St. John's patient reimbursement is heavily skewed towards a government
payer mix because its population base is older and more rural than the average.
More than 14 percent of the region's residents are over 65 years of age; farming
constitutes its economic basis. Medicare and Medicaid patients generate about
56 percent of St. John's total annual net revenues.
A competing health care provider, also located in Joplin, has slightly fewer
total beds than St. John's. Several other smaller primary and secondary care
level, not-for-profit hospitals, ranging in size from 16 to 150 beds, are scattered
through the region.
During the early 1990s, St. John's received national recognition for its rapid
growth and financial success. In 1996 the hospital commanded more than 60 percent
of the local community's market share of inpatient admissions.
The Decline of Market Dominance
When St. John's two local competitors merged in 1994, the new entity instituted
an aggressive integrated-delivery strategy, staffing its system with employed
physicians. Having purchased physician practices in surrounding communities,
the new system was able to encourage patient referrals to its own Joplin facility.
(Today nearly all of the 130 primary and specialty physician members of this
system's medical staff are employees.)
The new system also launched a capital investment campaign, adding significant
new facilities and services that had previously been available only at St. John's.
And it implemented an intense marketing campaign touting the development of
its new, state-of-the-art specialty services. These strategies created fierce
competition for patients between St. John's and the new system.
By the close of 1998, St. John's local market share of inpatient admissions
had eroded to 53.4 percent, a loss of 6.6 percent market share in three years.
In June 1999, the extent of St. John's financial losses was evident. St. John's
posted a bottom line operating loss of $24 million, representing a negative
14 percent operating margin.
CHI consultants conducted a comprehensive assessment of St. John's situation
and found six major reasons for the decline:
- Ineffective leadership and decision making by senior management
- Operational costs that were inconsistent with declines in business and
- Excessive capital spending on external development ventures rather than
on the replacement of critical equipment and physical plant in the main hospital
- A steady decline in the amount of advertising and marketing dollars devoted
to promotion of key clinical service lines, compared to those spent by the
competing new system
- Complacency on the part of St. John's management regarding operational
excellence and quality issues, resulting in the undermining of patient and
- Loss of major managed care contracts to the competitor
In November 1998, to address this deteriorating situation, a new president
and CEO was hired. In early 1999, the new CEO replaced nearly all of the senior
management team. He also reduced St. John's workforce by more than 120 persons,
a move that (since many of these people were management team members) was intended
to streamline decision making and reduce unnecessary overhead costs. Severance
pay and outplacement assistance were offered to all employees affected by the
Planning the Turnaround
St. John's new leadership team undertook an extensive evaluation of all aspects
of its hospital operations, financial management, physician relations, and business
development actions. The team's findings—both positive and negative—were then
reported to CHI and St. John's board, employees, and medical staff. In the past,
St. John's had shared limited information with stakeholders about the organization's
performance. Their report came as a total surprise to most people in the hospital
and the community at large.
Given the evaluation's findings, the new management team made a number of
changes critical to internal operations; these changes improved financial performance
but did nothing to recapture market share. Then, starting in the summer of 1999
and extending over the next six months, the team instituted a comprehensive
strategic planning framework to refocus the organization's energy and identify
critical planning issues.
St. John's CEO invited CHI's corporate vice president for strategic planning
to collaborate in the initial planning effort. He helped assemble an internal
planning team consisting of himself, St. John's senior vice president of marketing
and business development (who became the team's chair), CHI representatives,
board members, physician leaders, and management representatives from throughout
Over a four-month period, the internal planning team held meetings with each
group of stakeholders (including clinical, support, management, physician, and
patient representatives), reviewing the historical data and frankly discussing
the strengths, weaknesses, and perceived opportunities for and threats to the
organization. From these discussions, the team crafted a framework for a new
three-year strategic plan.
In 2000 the team engaged a national survey firm to conduct a study of the
community's perception of its health care environment. Because this firm had
conducted similar studies in other communities, it was well placed to compare
results. The survey measured:
- Key "drivers" of patient satisfaction
- Area residents' reasons for choosing one hospital rather than another
- The major causes, as area residents saw them, for the deterioration in
St. John's market share performance
It became apparent that customer perception of St. John's as the best hospital
for various leading service lines had declined significantly between 1998 and
2000 (see Table 1). The survey also showed that public awareness of the
new competing system had increased dramatically. The study underlined St. John's
urgent need to improve its image if it were to avert further erosion of market
share and deterioration of financial performance.
Having learned the reasons for the decline, St. John's board and managers
made a firm commitment to strengthening the promotion of services. They began
by totally revamping their marketing and public relations strategy, tripling
the advertising budget for fiscal 2000.
Table 1: Need for a Turnaround
The need for a turnaround at St. John's was indicated by surveys that
showed a decline in public perception of some of its services.
The Strategic Planning Foundation
The members of St. John's new management team, in planning their meetings with
stakeholders, had adopted the ideas of George A. Steiner, a strategic planning
expert. "For managers at all levels, strategic planning is interrelated with
the management process," Steiner writes. "Strategic planning is not something
separate and distinct from management."1
The team realized the importance of gathering input from key stakeholders
in order to establish universal "buy-in," as Steiner suggests. The team's collaborative
planning effort, as led by the CEO, provided a vital link between management
and the board. It established the overall corporate plan and key strategies
aimed at stimulating organizational growth and financial success.
However, as Steiner notes, the role played by an organization's chief planning
officer—in St. John's case, the senior vice president for marketing and business
development—is not an easy one.
The relationship between the corporate planner and the chief executive officer
is a complex, delicate, and sensitive one [Steiner writes]. The planner simply
must be compatible with the chief executive officer and complement his interests
and abilities. If the fit is not good, the planner will be ineffective. .
. . The planner must manage complex relationships among many managers and
staff, often where there is sharp conflict, and retain respect, good will,
and trust of those involved. The ideal choice for a corporate planner, according
to one observer of the job, is "a man who is both philosopher and realist,
theoretician and practical politician, soothsayer and salesman and . . . he
probably should be able to walk on water."2
In fact, St. John's staff at first generally resisted the strategic planning
process because in the past the process had had little if any positive impact
on organizational direction and management decision making. During the busy
days of the management crisis, strategic planning was conducted without stakeholder
acceptance and implementation was not done well. Then, after the members of
the new management team took over, they spent several months gaining the confidence
and participation of line managers at all levels of the organization and obtaining
buy-in from influential physician leaders.
The new management team used something called the "hoshin process"
in developing priorities and clear focus on critical planning issues. Hoshin
is a Japanese approach to strategic planning and quality improvement; it "means
a core belief, an intellectual pole star or reference point. In continuous improvement,
the hoshin is customer needs. The best examples of hoshin perspective
go far beyond meeting immediate customer requests to anticipate and even implant
ideas customers would never have thought of on their own. . . . The hoshin
perspective involves a sophisticated interplay of market analysis, technology
analysis, creativity, and role-playing leading to breakthrough inventions and
St. John's appeared to have a desperate need for a hoshin—a focus on
the important issues regarding the organization's long-term future. In adopting
the hoshin process, the new management team began by, first, organizing
several meetings involving managers and caregivers, and, second, reviewing internal
and external performance and demographic data while gathering input and building
consensus among the diverse¯clinical groups throughout the health care system.
The kick-off meeting was an all-day, off-site session that included more than
80 managers and supervisors. Ultimately, the hoshin planning process
involved approximately 245 people, a number representing 10 percent of all stakeholders
¬2,000 employees and 230 physicians). Because it evolved from this collaborative
process, the new strategic plan was a dynamic and living document for all stakeholders.
According to Marian C. Jennings, a health care management expert, senior managers
must provide their boards with honest, timely, and concise facts in order to
ensure that salient points of discussion surface during the strategic planning
process. As Jennings puts it, "The board's informed commitment to the organization's
vision and strategic intent is imperative. Informed commitment means that from
the beginning and throughout implementation, the board must fully understand
the potential capital and human cost of change, accept the risks associated
with strategic intent, and be prepared to allocate or reallocate the resources
needed to achieve the agreed-upon objectives."4
Throughout St. John's strategic planning process, the new management team
kept board members well-informed of the critical issues affecting operations,
briefed them about community needs, and made sure they better understood the
marketplace environmental and competitive trends.
The team proposed to the board three critical success factors:
- Exceptional organizational performance
- Enhanced organizational aggressiveness
- Improved physician strategy
The team outlined a strategic planning process based on these factors to achieve
success. As the process evolved, the board had regular updates and annual planning
The Strategic Planning Process
During the strategic planning process, the board and senior management were
asked to thoroughly evaluate the hospital's strengths and weaknesses, the opportunities
perceived for it, and the threats perceived to it, concerning both St. John's
as a whole and each of its main clinical service lines. In open, frank, and
honest discussions, brainstorming and prioritization techniques, St. John's
leaders identified, first, the critical areas needing attention and, second,
the action steps that would address deteriorating performance.
As a starting point for the turnaround process, the new management team took
a look at the organization's mission and vision statements, to make sure they
were consistent with St. John's core values. Those core values are:
- Reverence for the individuals and communities served
- Integrity in collaboration with each other
- Compassion in healing efforts
- Excellence in how things are done
In June 2000 the board approved updated mission and vision statements, setting
the foundation for the new strategic plan. According to the updated mission
statement, St. John's will "nurture the healing ministry of the Church by bringing
it new life, energy and viability in the 21st Century." According to the new
vision statement, St. John's, "guided by our Values and Mission, [will] continue
to be the preferred health care provider, promoting healthier lives, and being
the recognized leader in providing quality, cost-effective care for the people
and communities in the Four-State region we serve."
During the initial hoshin sessions, the management team presented historical
data and elicited comments from the various groups involved, resulting in hundreds
of suggestions about ways to improve the bottom line and "grow" the overall
business. After that, the team narrowed down the list of suggestions, setting
priorities and retaining only those ideas that could realistically be implemented.
The last step in the hoshin process was to identify the issues deemed
absolutely essential to the organization's success.
Once the hoshin process was completed, the internal planning team met
with eight to 16 representatives from each of St. John's eight major service
lines. The team took special care to include physicians in the discussions.
Key physician leaders actively participated iý service-line planning sessions,
helping develop process-improvement strategies and measurable outcomes. In the
end, to ensure a close connection between physicians and other clinical personnel,
the team invited the entire medical staff to attend the service-line sessions
to review and comment on the findings of individual work groups. The medical
staff's suggestions were incorporated into St. John's corporate and service-line
strategies. This final planning-assessment product was then presented to senior
management for its review and input.
The Strategic Planning Product
With the strategic planning process well under way, the internal planning team
prepared a document to present to the board at its annual planning retreat in
October 2000. Board members were given the planning materials two weeks before
the retreat to help them evaluate the information and prepare questions about
it. The CEO intended to keep formal staff presentations at the retreat to a
minimum, maximizing time for discussion among board members concerning the setting
of realistic goals.
The board, management team, internal planning team, and physician leaders
agreed to focus key resources and energies on eight "critical strategic initiatives."
- Exercise strong, effective leadership
- Maintain leadership in major clinical lines
- Improve operational performance
- Actively market the hospital's strength
- Increase number of primary care physicians in St. John's network
- Strengthen the viability of St. John's employed physician practice group
- Expand managed care contracts and promote inclusive arrangements
- Address aging equipment and facilities
In 2001, management expanded the strategic plan to include detailed three-year
business plans covering the four strongest and four weakest service lines and
outlined operating performance goals, capital equipment, and facilities reinvestment
A second edition of the strategic plan, developed in 2002, incorporated seven
complementary focus areas:
- Enhance clinical quality
- Maximize human capital
- "Grow" market share
- Improve the payer mix
- Update information systems and their applications
- Maintain excellence in medical technologies
- Reinvest in the physical plant and implement a long-range master facility
The management team identified the major risk factors involved in the updated
strategic plan and outlined them for the board. As the plan was implemented,
the board tracked it on a quarterly basis, making adjustments in the plan's
Implementing the Plan
Following the adoption of the three-year strategic plan, the internal planning
team, working closely with the new management team, assigned roles, responsibilities,
and specific timelines for each of the strategic initiatives. An implementation
plan was put on St. John's in-house computer network, thereby enabling managers
to track the key initiatives' progress.
The strategic plan also guided the new management team in the development
of new business plans intended to appropriately allocate resources and capital
for major acquisition or building projects.
The management team monitored the critical success factors concerning particular
St. John's executives; these factors were then reviewed by the CEO and forwarded
to the board (with explanations of variances from the targets) on a quarterly
basis. This disciplined approach encouraged a strong culture of success and
accountability throughout the organization. The strategic planning process thus
worked to educate, challenge, and motivate stakeholders in a manner consistent
with the management philosophy espoused by Peter Drucker: "Management is doing
things right; leadership is doing the right things."5
As the strategic plan's performance goals and benchmarks were achieved, they
were made occasions for celebration, including the awarding of performance incentives
to the employees meriting them. These celebrations helped reinforce the relevance
and importance of St. John's planning process.
A Successful Turnaround
St. John's experience indicates that successful strategic planning should include
three key components:
- Collaboration and input from employees, physicians, board members, and
key members of the community during the planning process
- Communication—frequent and open—with all stakeholders
- Celebration that shares the glory of success, recognizing all contributors
The result of St. John's strategic plan is perhaps best summarized by a September
2001 item in FitchRatings, an online subscription service that reports
changes in credit ratings:
[Catholic Health initiatives'] management has engineered and supervised
very impressive turnarounds within several of its markets. . . . St. John's
Regional Medical Center, Joplin, Missouri, improved from a $26.8 million operating
deficit in fiscal 1999 to a positive operating surplus of $2.4 million in
2000 and $12 million in fiscal 2001. . . . Although the size of these selected
turnarounds is impressive, Fitch views the sustained improvement of
these turnarounds as more significant.
As it became apparent that turnaround would be sustained, physician and staff
attitudes improved noticeably throughout St. John's. As the organization posted
achievements, recapturing market share that had been lost to competitors, it
was increasingly clear that St. John's commitment to frank and honest communication
had helped rebuild trust among managers, physicians, and members of the board.
The turnaround's continuing success can be seen in Table 2. Between
fiscal years 1998 and 2002, St. John's showed a 31 percent growth in patient
admissions, with only a slight drop in 2002. Market share of local inpatients
steadily improved, climbing from an all-time low of 53 percent in 1999 to 55
percent in 2002. St. John's present goal is to reach 57 percent of local market
share in a five-year horizon. St. John's dramatic growth in volume and improved
financial performance has generated sufficient excess cash to allow it to move
forward with a major capital reinvestment proposal, including a $70 million
phased renovation and expansion program over the next several years.
As Michael Pence, a former board chair, said in a letter of October 10, 2002:
"I am confident that without the use of collaborative strategic planning these
past four years, St. John's would be a failed or failing hospital today. Instead
we are a top performer because we involved the board and all levels of management
in producing a clear, concise and simple rolling three-year strategic plan each
year that only focuses on the few key strategies most critical to our progress."
No wonder, then, that when the updated version of the strategic plan was presented
to the board at the 2001 annual planning retreat, its members gave the management
team a standing ovation.
John R. Griffith, one of this article's authors, is also a coauthor, with
Kenneth R. White, PhD, and Patricia A. Cahill, JD, of Thinking Forward:
Six Strategies for Highly Successful Organizations, which will be published
in July by Health Administration Press, Chicago. Dr. Cahill is of course the
founding president and CEO of Catholic Health Initiatives, Denver. Both she
and Dr. White have written for Health Progress.
Table 2: Key System Performance Indicators during the Turnaround
|Average daily census
|Total revenue (in thousands)
|Share of local inpatient market
Charity and community benefit (in thousands)
- George A. Steiner, A Step-By-Step Guide to Strategic Planning: What
Every Manager Must Know, The Free Press, New York City, 1979, p. 10.
- Steiner, pp. 72-73.
- John R. Griffith and Kenneth R. White, The Well-Managed Health Care
Organization, 5th ed., Health Administration Press, Chicago, 2002, p.
- Marian C. Jennings, ed., Health Care Strategy for Uncertain Times,
Jossey-Bass, Chicago, 2000, p. 234.
- Peter F. Drucker, The Effective Executive, Harper & Row, New
York City, 1966, p. 6.
September 28, 2001, p. 4.
Copyright © 2003 by the Catholic Health Association of the United States
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