CASE: Strategic Planning at Multistate Health Corporation
As you read this case, think about the relationship among competitive strategy and both the HR and HRD functions at Multistate Health Corporation (MHC). The case was written in 1994 and is real, but the corporation asked that its name not be used. The federal and insurance environment for health care has changed substantially since that time; however, the strategic planning issues faced by MHC remain relevant today. The information provided here reflects the organization in 1993 as it was completing its strategic planning process. The Organization
MHC is a health care provider owned and operated by a religious order. MHC owns 30 hospitals and four subsidiary corporations employing more than 10,000 people. Its headquarters are in Michigan, with hospitals located in 17 states across the country. The overall organizational structure and the corporate HR structure are depicted in Exhibits 2-1 and 2-2. Competitive Strategy
*Each hospital has a CEO reporting to the regional executive vice president (EVP). Hospital are referred to as divisions within MHC and have a CEO as well as a functional staff (including HR) for conducting divisional operations. Corporate HR is included as part of corporate staff, as desicribed in Exhibit 2-2. Exhibit 2-2
In line with its mission, which is rooted in the tenets of the order’s religion, MHC focused on providing care to the indigent and less able members of the community. It was reasonably successful until 1989, when the health care industry began to experience considerable change in governmental regulations and insurance procedures. At the time of their strategic planning, hospitals were reimbursed on the basis of a preset, standardized price for treatment rather than the “cost-plus” method used previously. The federal and state governments were putting increasing pressure on health care institutions to reduce costs. In addition, new medical technologies and procedures being developed were expensive to acquire and implement. MHC recently acquired subsidiary corporations to develop or acquire new procedures and technologies. The subsidiaries were to work in partnership with the regions to implement new procedures and technologies. MHC has lost money every year since 1987. Currently, it is experiencing an oversupply of bed space in most of the communities with MHC hospitals. Projections indicate that the need for inpatient services will decline while the need for outpatient services will increase. Nontraditional health-related services are also projected to increase (e.g., services in which patients and their relatives are trained in self-care or care of relatives). In short, the market is becoming much more competitive while products and services are rapidly changing. MHC just finished its corporate strategic planning process and planned to develop a two-pronged market strategy to deal with its changing business environment. One major area of focus is technology. The strategic planners departed from the previous strategy, opting to become a leader in the development of new health care technologies and procedures. They felt that the new developments would allow quicker recovery times, thus reducing the hospitals’ costs. In addition, the technology could be marketed to other health care providers, generating more revenue. The drawback was that new technologies and procedures were expensive to develop and were often subject to long waiting periods before being approved by the insurers and government agencies. The second prong of the strategy was directed toward the hospitals and was focused on improving efficiencies in basic health care and outpatient services. This would allow them to continue to provide for the basic health care needs of the less fortunate. The substantial governmental fees, grants, and other revenues tied to this population would provide a profit only if efficiencies could be developed throughout...
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