Capital Part 2: Strategic Alignment

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When capital is limited and the possible investment opportunities are numerous, how can organizations select the “best” ones for funding?

This is the current environment for most health and human service organizations.  The starting point might seem obvious – apply selection criteria and see which projects “score” the best!  With tight capital and lower margins, short-term financial impact is an obvious important criterion.  And, with little room for failure, another might have more to do with more with likelihood to succeed, especially in the long run.

Four types of criteria (see sidebar) when taken as a group, help us in both ways. One includes important aspects of financial feasibility, while the other three add other considerations that reflect how the role of health care (and health care providers) is evolving.  This broader definition of success mirrors the broader definition posed by concepts like the Balanced Scorecard and the Quadruple Aim.

Let’s explore the first one, Strategic Alignment, in more detail.  The best projects make sense strategically, and the following five elements are particularly important in the era of tight capital. The first two are well established ways to evaluate strategic alignment, while the remaining three reflect more recently developed points of strategic focus:

  1. Fit with Vision / Goals: Preference would always be given to projects that have a clear, direct fit with the organization Vision and at least one of the Goals or Objectives. Projects that will help enable multiple Goals or Objectives deserve even more consideration.
  2. Leverage Industry Trends: Since sound strategy should be influenced by developments in the broader industry, the best projects are those that leverage one or more industry trends, respond to one or more industry issues, or adapt one or more emerging industry best practices.
  3. Community Benefit / Market Need: Sound strategy is also derived from a thorough market assessment. The best projects are those that would address one or more high priority needs identified in the Community Health Needs Assessment (CHNA), and even better, be instrumental in implementing one or more recommendations in the Community Health Improvement Plan (CHIP).
  4. Customer Satisfaction: Capital projects that related to one or more Key Quality Characteristics (the dimensions of quality deemed most important by your customers) should receive extra consideration. Customer satisfaction is critical to patient loyalty (driving volume) and engagement (driving outcomes and referrals).
  5. Health Equity Impact: The Covid19 Pandemic highlighted growing disparities in care access and health. Increasingly highlighted in thorough CHNAs, the best capital investments will address health inequity at some level.

Are you and your leadership team prepared to get the most out of your capital investments?  Let us know if you have any additional thoughts as this series unfolds, or if we can be of any help applying these ideas in your capital project review, selection, and implementation processes.

Roberta Jelinek  and  Jeff Schilling

(This is the 2nd of 7 posts in the series.  For the full article, contact either one of us.)

Getting the Most Out of Capital – Part 1: Risk & Opportunity

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What’s that old saying…the Chinese word for Crisis (Wei Ji) is a blend of Danger (Wei) and Opportunity (Ji)?  While the truth in this literal translation is debatable at best, the concept has endured since the 1960s, probably because many have found it to hold elements of truth.

The “Dangers” of Tight Capital  Emerging from Covid19, inarguably a major crisis, many organizations found capital scarce, in part because lower margins during the pandemic resulted in lower (or no) funding of capital pools.  While there has been some improvement in margins for the industry as a whole in recent months, they may be slowing to a new normal.1  And, the improvements have varied significantly across hospitals. Sustained profitability is a delicate balancing act. Funding for capital investments is still limited.

Lower margins usually translate to less capital to allocate to potential projects, and with lower margins, there is less ability to compensate for lower-than-expected returns, so the risks associated with any underperforming or failed projects are much higher. This clearly resonates with the “danger” part of the crisis definition.

The Post-Covid Opportunity  In true fashion regarding the other half of the crisis definition, many health and human service organizations found the Covid19 peak years to be a period of opportunity, in part because it required substantial innovation to respond effectively to the scope and depth of human need.  Responding to the Pandemic accelerated the pace of many innovations (e.g. tele-medicine, working remotely) and initiated others (e.g. supply chain improvements).  Furthermore, the pace of innovation seems to be continuing, inspiring as many proposals for capital investment as ever…maybe more. Many of these innovations require substantial funding, including shifting care to new settings, leveraging technology, and workspace redesign.

The Dilemma of an Era of Tight Capital  When viewed in this way, the Crisis of Covid19 Pandemic indeed meant both danger and opportunity for capital investment. If these conditions persist, at least into the foreseeable future, how do leadership teams select the “best” projects to fund with limited capital from a large number of potential “game changers?” This series explores how to get the most out of capital investments in a period where capital is tight, and risks are high.

Selecting the Best  In the next three posts, we will cover four key characteristics, and a few useful tools, for selecting the capital investments most likely to succeed. Your organization may have already established criteria for evaluating various capital requests. However, in the current environment the focus needs to sharpen on investments that will balance a rapid rate of return with other important considerations.  We will review considerations that help ensure both sustainability and also synergy with the evolving US health care landscape in future posts.

Ensuring Success  Then, in two additional posts, we will cover six important considerations, and the associated steps you can take to help ensure the success of the investments that you choose.  Selecting the capital investment opportunities that best fit your criteria is still no guarantee of success, especially in this transformative period.  Societal pressures, evolving consumer expectations, and technological and clinical advancements result in a dynamic environment.  However, there are ways to foresee, or at least minimize the impact of, potential disruptors, and enhance the resiliency and impact of your project.

Are you and your leadership team prepared to get the most out of your capital investments?  Let us know if you have any additional thoughts as this series unfolds, or if we can be of any help applying these ideas in your capital project review, selection, and implementation processes.

Roberta Jelinek  and Jeff Schilling

(This is the 1st of 7 posts in the series.  For the full article, contact either one of us.)

1 April, 2024 edition of Kaufman Hall’s National Hospital Flash Report.