The Opportunity Costs of Poor Organizational Focus?The Worst Cost of All

Thursday, September 21, 2017 | Larry Sobal

 

Last week’s blog post focused on organizations having too many #1 priorities and offered some tools and ideas to help organizations avoid this common dilemma. If I could sum up that issue in one statement, it would be: “If you have too many priorities, you have none.”

As noted last week, overburdening (or overcommitting) is way too common in health care organizations, often to the point where leadership teams joke (or even brag) about it! Why do we keep doing it when we know better?

I understand that culling down the list of potential priorities is hard; organizations see a robust roster of potentially attractive strategic opportunities and operational needs, each with champions and arguments in support of the concept. They all look great in isolation. Yet if the leadership of the organization can’t reach agreement and communicate the top priorities, what hope does the organization really have?

Consider this study that found many leaders could not name their company’s top priorities. This doesn’t just suggest poor planning capability, it suggests an unhealthy organizational state. Author Patrick Lencioni, who has written many great books on the topic of organization health and the value of prioritization and clarity, noted in The Advantage that, “When an organization is unhealthy, no amount of heroism or technical expertise will make up for the politics and confusion that take root.”

In today’s post I thought I would dig into the flip side of having too many priorities. Or, to borrow from Sir Isaac Newton and his third law, “For every #1 priority beyond one, there is an opportunity cost which potentially offsets any potential benefit from those additional intended strategies.” In other words, you don’t just make a trade off, you actually incur opportunity costs that potentially move your organization backward. Let’s talk about what that means.

Economists define the term “opportunity cost” as the loss of the benefits that resources could have produced had they been put to their next-best use–the lost opportunity to invest in or support that alternative. The benefits from the next-best use may be smaller than those of the current use, indicating that the current use is best, or they may be greater, in which case the alternative is preferable. Opportunity cost analysis suggests questions such as:

• How much better off would our organization be if more money and resources were allocated to this strategy rather than that one?
• What is the most productive investment, in terms of organizational health, for any new resources?
• What are the least productive current investments or initiatives?
• What if a significant improvement opportunity is being ignored, either from avoidance or ignorance?

The notion of opportunity cost provides a way to address these questions without losing sight of the main purpose of your organization (assuming you determined that as one of the six questions Patrick Lencioni suggests in The Advantage).

If you are going to make a real attempt to set priorities, pay careful attention to the opportunity costs of what you won’t be able to do.

Enough of theory, let me poke at a real world example. It’s not uncommon for me to work with an organization that lists “growth” as a priority, maybe even one of its (many) #1 priorities. But producing actual growth in, say, TAVR procedures, may take focus and resources away from optimizing the patient flow into and out of the cath lab. In other words, adding 10% more TAVR cases might add little if any net margin, and might require seeing 100 more patients in your structural heart clinic while decreasing interventional physician access for regular new patients. If those opportunity costs weren’t enough, the effort might totally ignore the hundreds of thousands of dollars of wasted cost from operating an inefficient cath lab without a PCI same-day discharge program.

Here’s another one. Many organizations have established a target for attaining a specific level of HCAPS scores, or possibly reaching a certain percentile of performance. It’s hard to argue the merits of greater patient satisfaction, but sometimes it is evident (at least to me as an outsider) that there is an opportunity cost stemming from ignoring or failing to address the root causes of high employee turnover. Can better HCAPS actually happen without first addressing the turnover and disengaged employees? Probably not.

I remember working with a small physician practice that had lofty goals to recruit and expand, but was unwilling to address the reality that the physician leader’s behavior was so bullying and disruptive as to render any strategic initiative impossible. In this instance, what should have been the #1 priority was being ignored and, as a result, had a tremendous opportunity cost because nothing else ever got done.

Maybe the classic example of opportunity cost is physician incentive metrics. How often do you see a compensation plan that has 20 or more metrics having some impact on physician compensation? I see it a lot and it is known as choice overload. Overly complicated incentive programs can overwhelm providers, causing inertia to set in. Fewer, simpler choices are more likely to induce behavior changes, not to mention actually drive measureable improvement in the most important measures.

My point this week is two-fold. First, lack of prioritization has tremendous implications for your organization, namely that you may be unintentionally making it an unhealthy organization, either culturally, financially or both. Second, if you are going to make a real attempt to set priorities, pay careful attention to the opportunity costs of what you won’t be able to do. They may outweigh any benefits of the priority you are trying to accomplish. It could be that the opportunity cost of what you are not getting done outweighs what you are getting done. And that might be the most painful cost of all.

 

Illustration: Lee Sauer

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Larry Sobal is Executive Vice President and a Senior Consultant at MedAxiom. He has a 35-year background as a senior executive in medical group leadership, hospital leadership and health insurance. Larry consults, writes and presents on topics relevant to transforming physician practices and health systems. His weekly blog post comes out on Thursdays and can be accessed at www.medaxiom.com.

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