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Turn Uncertainty Into a Strategic Asset With Environmental Scenario Planning

The unsustainability of the health care system has made change a certainty for as long as most of us can remember. Our only questions have been: how and when will the change take shape? While the results of the 2016 election season have heightened the certainty of change, what this change will look like has become much harder to predict as we move into 2017.

If you don’t sense chaos in the future of health care, consider some of the policy proposals we’ve heard recently: Medicaid as a block grant program, Medicare as a voucher system and the wholesale privatization of the US Department of Veterans Affairs health care benefits. Hospital leadership teams are urgently huddling to address the question, “Now what?”

Unfortunately, many will approach the increasingly volatile environment using traditional planning processes that put their institutions at unnecessary risk. Does the following situation sound familiar? In your usual planning exercise, the team develops a singular vision for the future and then determines the strategic imperatives and initiatives that will best position the organization to thrive in that expected future state. The critical flaw in this approach is that the future is inherently unknowable, and so to bet the success of the institution on our predictive abilities is to invite unwanted risk and organizational anxiety. Some institutions work around the challenge by developing “strategic plans” that sidestep the commitment to a singular vision of the future, focusing instead on platitude-heavy goal statements that read like public relations documents.

In the end, traditional planning processes force hospitals to choose between 2 unattractive options: stake the organization’s fortunes on their ability to know the future or create plans that are so fluffy that they offer little meaningful guidance.

Rid the Unnecessary Risk From Your Strategy Planning With ESP
But what if it were possible to make hard-hitting plans without knowing exactly what the future will entail? What if, instead of picking one future state, we embraced the unpredictability of what is yet to come? Environmental scenario planning (ESP) gives us a process to do just that. ESP is a powerful alternative to the traditional strategic planning process because it frees us from having to predict the future.

Origin and Uses of ESP
The ESP approach wasn’t invented with health care in mind. The method is generally attributed to the Rand Corporation, where it was developed for military applications. It is a sad irony to think that the very characteristics of what we call the theater of war—high-stakes outcomes, complexity, volatility and the presence of hostile elements—are often the same elements in today’s operating environment for health care providers. However, those unfortunate parallels only strengthen the case of applying ESP in health system planning efforts.

Although this style of strategic planning is often referred to simply as “scenario planning,” at Sg2 we add the “environmental” modifier to emphasize the importance of creating outward-looking scenarios. While some organizations conduct planning exercises they call “scenario planning,” often these are more accurately described as options analyses. For example: Should we direct our development efforts in the primary service area or into westward market expansion? Should we acquire more physician practices? Should we launch a health plan? Options analysis—under any name—brings us right back to the shortcomings of traditional strategic planning: whether or not an option is a good idea will usually come down to what will be happening in the environment in the future. Launching a health plan may be a stroke of strategic genius in some environments and an utter disaster under different circumstances. Most organizations are better off with the ESP approach: contemplating a range of possible futures, creating a high-level plan for each and letting the recurring themes chart the desired course.

How ESP Aids Strategic Planning
ESP encourages us to begin by imagining a broad range of possible future states (scenarios), collectively running the gamut of likelihood and potential impact. From there, we address one scenario at a time, giving ourselves the assumption of certainty: “If today we could be 100% sure that this scenario would describe our environment in 3 to 5 years, what would we do now to prepare?” Having completed that process for each of the environmental scenarios, we’re then ready to step back and look for the recurring themes across our plans. If, for example, an organization completes plans for 10 environmental scenarios and 7 of those call for expansion into virtual health delivery channels, we can take comfort in knowing that virtual health is likely to hold strategic benefit, without knowing which version of the future will actually come true.

The illustration below summarizes Sg2 Consulting’s ESP work for a suburban health system in a consolidating market, with 10 scenarios in which the defining characteristics of the environment varied from the all-but-certain (the primary competitor joining with a system partner) to the extremely remote (collapse of the market’s leading payer).

Almost always at this early stage of ESP, one of the main benefits of the approach begins to emerge: stakeholders literally see their issues, intentions and concerns being explicitly woven into the planning process. Everyone feels heard. At the same time, with the knowledge that none of these environmental scenarios will be picked “the winner,” participants can let go of the hedging, digging in and defensiveness that can quickly diminish the value of traditional strategic planning. By focusing on across-the-board themes, the health system mentioned above highlighted issues such as strengthening behavioral health, building influence with local post-acute providers and differentiating its brand as offering the best patient experience.

ESP Provides a Number of Unique Benefits
Because the ESP process is so different from traditional planning, it can be counterintuitive for some stakeholders and difficult to begin. Yet, with experienced facilitation, even the most reluctant participants can become engaged in developing scenarios, planning with certainty for specific environmental conditions and discovering the all-important recurring themes across the plans. The process lends itself especially well to planning retreats, where board members, medical staff and other stakeholders can get truly “hands on” in helping craft plans in response to specific environmental conditions.

Beyond the benefit of stakeholder engagement, ESP also promotes expansive thinking and builds contingency plans. Yet perhaps the most significant advantage of ESP is its inherent ability to diversify predictive risk across a broad set of possible future states, thereby creating a more flexible, defensible and credible plan that can garner strong institutional support.

Knowing When to Apply ESP
Consider the following indicators that it may be time to incorporate ESP into your next planning cycle:

1) Your current plan sets clear goals and priorities, but shies away from naming a short list of equally clear imperatives to inform “how” you’ll reach those goals.

2) You’re concerned that key stakeholders have been underengaged in past planning processes—or, worse, they feel they aren’t being heard—and organizational support for the strategic plan isn’t as robust as it should be.

3) Your local market is complex and volatile, with so many potential environmental disrupters that you can hardly list them all, let alone predict exactly how those dynamics will play out in a singular vision of the future.

As we enter 2017 and your organization begins to plan in the face of postelection uncertainty, Sg2 Consulting can help unlock the value of ESP. Applying Sg2’s unique perspective on the future of health care, coupled with an understanding of the volatility ahead (including the unknowns accompanying the new administration), we can guide your team through crafting a set of environmental scenarios that will truly resonate with institutional stakeholders. Then, the very best of Sg2 Analytics can be leveraged to develop a robust strategic plan for each environmental circumstance and to determine those critical strategic themes shared across scenarios. As a result, your institution will experience a planning process that is more engaging, expansive and transparent, yielding a final plan that enjoys unprecedented levels of relevance, organizational confidence and stakeholder support.

Want to learn more? Contact us at 847.779.5600 or learnmore@sg2.com to be connected with one of Sg2’s experienced ESP facilitators.

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As of February 11, 2016, Vizient, Inc. has completed its purchase of MedAssets Sg2 and spend and clinical resource management segments from Pamplona Capital Management, LLC. MedAssets revenue cycle business will continue to operate as a wholly-owned subsidiary of Pamplona Capital Management LLP.

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