You can’t get there without a road map

What will your community look like five years hence? How about the environment in which it operates? Will financing systems be the same? Public and community perceptions of long-term care? What will your product look like? The same as today's? Appreciably different? Unrecognizable?

It's amazing how many of us embark on a major journey without a road map—or, in this case, a strategic plan. That's basically what a strategic plan is, after all—a road map. And strategic planning is not all that difficult. It requires only that we step back from our day-to-day activities and think a bit about the future, and how we wish to accommodate to it. This can actually be fun!

Let's start, though, by differentiating strategic thinking from strategic planning. Strategic thinking is the process that organizations use to determine what their future should look like. Such thinking creates a vision of where the organization would like ultimately to find itself. Strategic planning, on the other hand, focuses on how to achieve the vision derived from strategic thinking.

Both strategic thinking and planning are important, but most companies are more effective in strategic planning than strategic thinking, perhaps because senior company officials tend to have an operations background. Such backgrounds are better preparation for strategic planning than for strategic thinking, and even the most successful operators may not have had the opportunity to develop the skills required for the latter. Furthermore, the common emphasis these days on current market share and growth may shift the focus away from new markets.

Strategic thinking, therefore, requires the organization to take a wider view. How concrete is your vision? Is it shared across the community or company? Does senior staff spend most of its time on operational or on strategic matters? Are you largely reacting to external events, or are you proactively implementing your corporate vision? Are you thinking mostly about next month or next year? Do you think strategically only in crises, or when things are going well? Is your primary focus next month's or next year's bottom line?

I could go on, but you probably get the idea. Strategic thinking is not simply an extrapolation from today into tomorrow. It is the development of a framework developed de novo, not simply a reflection of today's reality. While it must be realistic and based on available data, it does not assume that tomorrow will be a reflection of today. Initially, at least, it attempts to add rather than eliminate likely scenarios, and that might make it appear overly burdensome. But there will be plenty of time to become more realistic and balanced when we move from strategic thinking to strategic planning.

Several key (although not always obvious) principles should guide your strategic thinking (vision) and strategic planning (mission). (And best to make clear at this point that profit is neither your vision nor your mission. Profit, rather, is a product of the activities your vision and mission generate.) First, there must be a single vision, a single mission within the company, and all company activities must be organized and operate accordingly. And absent changes in the market or competitive environment, they must remain consistent; constant change results in a loss of focus. Finally, whatever your vision, two key core competencies must be mastered within your mission for your vision to become reality: marketing and quality.

When the company has defined its vision and mission, it can begin to develop a strategy. In other words, it can begin to attach goals (long term) and objectives (short term) to its vision and mission. Goals are the quantifiable “way stations” we aspire to visit as we fulfill our mission (e.g., to assume the dominant position in our chosen market by 2011). Objectives are the shorter-term (and equally measurable) activities required to reach one's goals (e.g., to reach a 90% customer satisfaction level in 2007).

Even before writing up goals and objectives, however, corporate officers need to communicate their vision and mission to company employees in a manner that elicits both employee understanding and “buy-in.” The typical vision/mission statement (“We will be a successful company and make a lot of money”) won't do it. That's neither vision nor mission, and certainly not anything designed to kindle the fires of dedicated employees. A measure of a concept's effectiveness is whether employees throughout the company can fully understand the statement and apply its principles to their own work.

Let's use an example from the National Investment Center for the Seniors Housing & Care Industry (NIC). As for vision, NIC sees itself as “the premier provider of unbiased business and financial information to financiers and operators/developers in the seniors housing and care industries in order to facilitate the efficient formation of capital.” Short, sweet, and to the point. Also grandiose? Perhaps. But as the product of strategic thinking, it is clearly a vision that points to a unique status for the organization.

To achieve that vision, NIC sees as its mission to establish “the undisputed ‘gold standard’ for strategic information within the field through expanded research, the application of technology, and recognition of [its] fiduciary responsibility as a non-profit education organization.” Here NIC's mission statement, the prelude to and product of strategic planning, is much more operational in nature. It's saying, “we know what we want to be (vision); now let's focus on how to get there (mission).” Both are inextricably intertwined, but stem from different thought processes. Developing goals and objectives now becomes much easier.

In any field, a major factor in a company's longevity is its ability, willingness, and commitment to grow. This principle applies to the seniors' housing and care business as much as any other. But, again, this process must take place within the context of the company's vision. Otherwise, the company either fails to seek new opportunities (which will ordinarily be the first step toward bankruptcy) or does so in a haphazard manner that results in wasted resources and failure to keep up with competitors. Growth is a primary tool that most companies use to implement their strategic thinking, and growth must focus on three areas: (1) gaining a competitive advantage, (2) identifying the steps needed for marketing that advantage, and (3) recognizing the central role of service and marketing in seniors' housing and care.

The basis of competitive advantage is the creation of superior value for customers. Just what is “value”? Put simply, it's the customer's perception of a service or a product from the perspectives of both cost and quality. In selecting a seniors' housing and care facility of a certain type, the customer (either the resident or his/her children) looks for one of two features: lower price for the same quality, or services that more uniquely meet the customer's requirements. One approach to gaining competitive advantage, therefore, is by reducing costs so as to provide the service at a lower price than the competitors without reducing the quality of services. Possible approaches include operating more efficiently or accepting a lower margin and making up the difference through volume. The “cost-leadership discipline” involves being the low-cost producer in the industry.

By reducing costs involved in providing the product or service and charging below average prices, the firm will be financially successful. However, buyers must perceive the product or service as being at least of average quality, or they will expect even lower prices, thus negating the cost advantage. Consequently, cost leadership involves providing a product identical with your competitor's, thus relying on the lower price to be financially successful. Unfortunately, if much of your competition is also striving to be the cost leader, the results of that kind of competition can be disastrous for all.

The alternative is to provide a higher-quality or a specialized service, even though it results in a greater cost to the customer. This approach requires careful market research to confirm sufficient demand for the services. By meeting a smaller segment of customers' specific needs or wants, a company can also gain the same competitive advantage as those whose emphasis is primarily on price.

The selection of this “value discipline” is a major factor in the innovative company's approach to business and to its internal operations and philosophy. But it also puts a much greater emphasis on strategic thinking before strategic planning can really take off. Just being the community's best assisted living or nursing facility won't do it. Management must identify and assess the appropriate mix of product and service for its industry niche, determine what would enhance customer satisfaction, confirm the company's commitment to service, and market the product effectively. If successful in these four functions, a firm can establish a unique role in its industry, differentiating itself from other players and thus allowing higher prices. Differentiation can be based on such factors as the product or service itself, the means of delivery, and/or marketing. Unlike the cost strategy, many firms within an industry can rely on differentiation, as long as each provides unique services in different geographic areas. But you truly must be different. (Nor, of course, can the value-focused company totally ignore price, even if only to assure that its production costs do not exceed revenues.)

Unlike cost leadership, the value-oriented firm seeks to gain competitive advantage by pursuing a narrow area within the industry in terms either of product differentiation and/or quality. A firm taking this approach does not compete with others head-on. Rather, it identifies an area in which it can specialize and become the leading (or only) provider of service in that niche. Even if not the sole provider of the differentiated service, the firm can attempt to take the lead in terms of perceived quality. While the cost focus addresses differences in cost behavior, differentiation identifies the special needs of some buyers. The value focus strategy can be very profitable, but only if the firm has clearly established that the niche does exist, that nobody is adequately filling it, and that potential buyers will pay the freight.

And what happens if, as is inevitable, others attempt to emulate your product offerings? The answer depends on the state of your company within the marketplace. If it is not succeeding or if its market niche is disappearing, the answer may be to dramatically change your approach. More typically, however, the process of differentiation is an ongoing evolution, as the company identifies better ways to fit into its niche or identifies other niches. The evolutionary process takes place in three steps: (1) continually invent/reinvent basic offerings, recognizing that it probably won't be long before competitors start to offer the same product/service; (2) continually expand value to the customer, which may include upgrading offerings or adding new products or services to retain existing customers and attract new ones; and (3) respond to competitors who are moving into that niche through the ongoing process of establishing a different identity that is more attractive to customers.

Finally, remember that the company must continue to enhance and improve operations to remain successful. It must continually be involved in an “environmental scan,” attempting to predict those factors that influence the marketplace and the company's operations within it. Change will occur. Legislation will be enacted. Public perceptions and demands will evolve, along with the demographics of your customer base. Never assume that tomorrow will reflect today. Begin with that, and strategic planning will be a breeze.

To send your comments to Dr. Willging and the editors, e-mail willging1106@nursinghomesmagazine.com.

Sidebar

Paul R. Willging, PhD, was involved in long-term care policy development at the highest levels for more than 20 years. For 16 years as president/CEO of the American Health Care Association, Dr. Willging went on to cofound the successful Johns Hopkins Seniors Housing and Care postgraduate program (cosponsored by the National Investment Center for the Seniors Housing & Care Industries), and later served as president/CEO of the Assisted Living Federation of America. He has enjoyed an equally long-lived reputation for offering outspoken, often provocative views on long-term care.