Sg2 Strategic Countdown: Economies of Scale
For too long, health systems have exploited only a fraction of the potential value available through economies of scale. Scale historically has amounted strictly to the financial levers of reduced cost of capital and stronger bargaining position with payers. Emerging sources of scale go well beyond what this conventional wisdom suggests. They include talent, from acquiring and leveraging human capital; clinical, achieved via care delivery changes to increase quality, reduce cost or both; and population health, from pooling investments (eg, workforce, technology) and competencies to support services for a target population.
How can health care organizations leverage the full spectrum? As a starting point, Sg2 offers a 5-step approach to evaluating and implementing opportunities.
- Establish Organizational Requirements for Scale. What are the goals in seeking to achieve economies of scale? Are financial ends such as additional cash flow, improved access to capital or an expanded revenue base the main objectives? Is there a savings target? Or is the organization going after emerging sources of scale?
- Evaluate the Organization’s Readiness for Change. Is there a common sense of urgency or a strong business case for change? What is the board’s appetite for change? What characteristics of the culture will make implementation more or less difficult? Is the leadership team skilled in change management? What is the system’s track record with similar efforts?
- Understand the Upside, Necessary Investments and Risk. Which sources of scale best meet the organization’s requirements? Within these sources, what is the potential for value creation? What are the potential costs—tangible and intangible—of implementing the changes required to realize this value? Do the math: will the value capture exceed the costs of implementation? What are the implementation risks, and how can they be mitigated?
- Create a Well-Coordinated Implementation Plan. Once you have set the organization’s course for leveraging scale, establish a single point of accountability for the entire implementation plan. Define specific scale initiatives with responsibilities, completion time frames and financial targets. Create a supporting financial plan. Develop a calendar-driven evaluation process to measure and report progress.
- Develop and Follow a Disciplined Communications Plan. Have the c-suite communicate and promote key elements of the plan to stakeholders. Provide regular updates. Be sure to celebrate wins along the way, and publicly recognize teams and individuals to build momentum across the organization.