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Rise of the Chief Strategy Officer

 |  By Philip Betbeze  
   November 25, 2013

While the CEO is still ultimately responsible for strategic direction, increasingly, health systems are creating the position of chief strategy officer, who guides the planning, execution, communication, and sustainment of that strategy.

This article appears in the November issue of HealthLeaders magazine.

As healthcare undergoes seismic shifts in its business model, many healthcare CEOs have realized they need help on the executive team. Increasingly, that help is coming in the form of leaders who can focus exclusively on something that in many organizations has been the CEO's exclusive responsibility: long-term strategy.

While the CEO is still ultimately responsible for strategic direction and follow-through, increasingly, health systems are creating the position of chief strategy officer, a person who guides strategic planning and is responsible for executing, communicating, and sustaining that strategy. Think of them as business development gurus who are generalists; their projects are long-term in nature. That's one reason a good CSO is hard to find and often will come from within the organization: The right person will need to possess well-rounded knowledge of how the organization functions now in order to envision a higher-functioning future state.

Despite the benefits of the inside candidate, many experts suggest that the chief strategy officer role may be a good fit for executives who are making the transition to healthcare from other industries, given the importance of fresh thinking, strategy, business development, and marketing that is central to the CSO's role. Many systems, however, are reluctant to take that risk.

Significantly more challenging

Greg Poulsen got involved with strategy work at Salt Lake City's Intermountain Healthcare 18 years ago—already 12 years into his career at the 22-hospital system. Then, he was the senior vice president of planning. In part due to his longevity with the organization, he was uniquely qualified because of a reasonably broad understanding of what works and what doesn't, he says. Now, as the CSO for the past five years, he's been elevated to the C-suite—a tight circle of advisors close to the CEO. He attributes that not to his own expertise necessarily, but to the dramatic shifts in the way healthcare business is conducted and the need for health systems to adapt to that change.

"The thing that's changed the most over the past five years that has elevated strategy work is the rapidity with which the world around us is changing," he says, adding that not all of the changes are positive. "Some of it is purposeful change in a consistent direction, but much is turbulent in that it goes one way one day and another the next, and figuring out the correct path is significantly more challenging than when I started."

Certainly many positions in the C-suite are morphing as healthcare leaders try to embrace the fact that systems are getting bigger with consolidation, that massive changes to reimbursement loom, and that health systems are taking on new responsibilities outside their traditional area of expertise—inpatient care.

Adriane Willig, a consultant with Oak Brook, Ill.–based Witt/Kieffer and an expert on strategy officer executive searches, says even in the current environment, not all organizations have this position and not all need it, although those that want to survive independently, regardless of size, probably should.

"The title is a newer version of what a strategy executive does, but it's an indication they are part of the senior team," she says. "Given the changing dynamics, it's critical for hospitals to be looking at the future and paint that vision, so having someone who can focus on planning for that uncertain future is becoming more critical."

Historically in many organizations, strategy has been done collectively by the CEO in conjunction with the board and often helped by outside consultants, says Willig, but that's no longer sufficient for many organizations. Foremost among their responsibilities, strategy officers are focusing on developing a framework for the entire organization, which even at a standalone hospital is a complicated place. The layering on of nontraditional offerings such as hospice, skilled nursing, a health plan component, or physician practices, just to name a few, brings another level of complexity. Finally, the CSO is charged with differentiating his or her hospital or health system based on value and quality—two metrics that, let's face it, are still relatively new to healthcare.

"In order to do that, they need to understand the whole spectrum of the business," Willig says.

The CSOs have to process information from disparate pieces and understand how to evaluate, using strong analytical skills, whether the organization has the right pieces for effective clinical integration, for example. Further, CSOs need to understand payers and the health insurance exchanges, and how to focus on driving their organization's differentiators into a competitive advantage with payers. They also need to understand technology, Willig says.

"You can't have a strong strategic plan without technology, and that's all coming out of the top strategy person or CSO," she says. "They have to understand everything from the technology to the mergers and acquisitions, as well as finance and operations. So it's a complex skill set and a person can't be a heavy hitter with all of these expansive skill sets." Which means the role of the CSO is still very organizationally driven in terms of what he or she needs to bring to the table, and why individual's responsibilities and influence seems to vary so widely among organizations that may seem similar in makeup.

The CSO most often reports directly to the CEO, but in some larger organizations, he or she might report to the COO, Willig says.

From nice to have to critical

Strategy is a small piece of what the CEO does on a daily basis, so adding a CSO should be a critical priority for helping the organization step out of the day-to-day margin issues and tight battles with operational efficiencies and instead look ahead. What's unusual, says Willig, is that salaries for CSOs, despite their range of responsibilities, still aren't commensurate with traditional C-suite salaries.

"That's a generality," she says, "but think back to about five years ago when the market started tanking, this then-new position was one of the first few to be let go."

After all, you can't focus on strategy, marketing, and clinical integration when you need to make the weekly payroll, but since the financial crisis and recession, Willig thinks CSOs are becoming more valued than ever. In most organizations where the CSO title still exists, it's not a glorified marketing position. Those jobs got washed away.

"Organizations are coming around to the fact that this is a need-to-have role now," she says. "It's the fact that we're operating in a competitive marketplace with much thinner margins than before. That's forcing everyone to take a much more aggressive and progressive view of what businesses they're in and what businesses they need to be in. You can't be everything to everyone; the market is changing so fast that organizations are realizing they need someone whose job is to focus on the future."

That future focus is one reason Julie Carmichael is aboard as the CSO at St. Vincent Health in Indianapolis. Part of Ascension Health, St. Vincent has 22 hospitals in Indiana, including several joint ventures. The organization's fourth CSO in 12 years, Carmichael has a 25-year background in healthcare, starting at the state hospital association in policy and moving on to run an organization that represented 20 suburban health organizations before joining St. Vincent about a year ago. She laughs as she notes that she has never worked in a hospital. That may be a positive, as a big part of her role is helping the organization grow beyond hospital care.

"We're really trying to figure out what our business model of the future needs to look like," she says. "We're trying to evolve our business into a more sustainable model for the long term, so we're moving toward a population health model."

What that means for Carmichael is tricky work, such as changing the way the organization approaches partnerships with physicians, developing its retail strategy, and moving away from the traditional campus into more accessible locations.

"We're looking at what types of services we need to put there to make our community more healthy," she says. "How do we evolve our payer strategy to accept different kinds of reimbursement? How do we develop new partnerships with payers in the marketplace? And there's always something going on around M&A. So the scope here is fairly broad."

Carmichael adds that while St. Vincent's hospital business is still strong—and a key piece to its mission--she suspects that as the organization pivots toward a focus on managing populations and taking financial risks on those populations' health status, "I'm not sure the majority of our margins will come from inpatient care. People are busy and want to access healthcare closer to home so transitions are important."

She says making those changes in strategy is so complex that health systems that are larger than one or two hospitals need the role of CSO to sequence strategies properly, if nothing else.

"Hospitals are not reputed to be the most nimble organizations, but that requirement is changing," she says. "Adding a CSO might be critical to retooling capabilities so we can do those things well and quickly."

If a CEO assumes his or her existing talent has the time to design and execute strategies that are different than the business as it exists today, that might be a big mistake, Carmichael says.

"Everyone's plates are really full on top of running a hospital or being responsible for operations. It's not easy to find time to focus on the future," she says. "Of course it varies from organization to organization, but if someone is struggling to execute on strategy, then a CSO might be a good addition."

Driving accountability

Intermountain's most visible internal initiative, says Poulsen, distinguished from accountable care, is called shared accountability.

Poulsen is charged with inculcating that philosophy organizationwide.

"The concept of accountability needs to span all the providers of healthcare—docs, hospitals, and ancillary providers—but also needs to engage the consumers of healthcare—patients or prospective patients—which we don't think have adequate visibility in the accountable care framework. The role of the CSO should be aligning people's interests and engaging all parties in dialogue and discussion."

He acknowledges that his role is perhaps different from that of other healthcare CSOs. Some view their role as oriented around growth. Some view it as being focused on appropriate mergers and acquisitions. Others might be attempting to increase the number of people their organization serves. Others may be trying to restructure the way care and services are provided.

"The attributes you want in your CSO are dependent on what the organization would like to move forward with," he says.

Overall, CSOs must be able to bring a broad vision of what can happen in their organization beyond what has already happened, Poulsen explains. Healthcare organizations are often constrained by what has and hasn't worked in the past, but in the world of a dramatically different future value incentive, "we have to reexamine old notions and ideas and potentially change what we think in dramatic ways," he says.

"We're changing what we define as success," he says. "What's a good outcome when statements of operation come out? Historically most have been successful when revenue is increasing. In the future, fee-for-service revenue becomes part of the problem and not the solution," Poulsen says, suggesting that high revenue growth could be considered synonymous with wasteful practices to payers as they try to encourage hospitals and health systems to focus on value.

But regardless of the talents that make for a good CSO, one is unassailable.

"To me the most important criterion is the person is capable of gaining respect of other members of the senior team. If that's not the case, it won't work," he says. "If you're fulfilling that role correctly, the CSO will encourage the organization to do things that are uncomfortable. That won't go well unless other members of the team are going to embrace that. The CSO and his team need to do an enormous amount of listening."

Still, the role of the CSO seems destined to grow in stature.

"I get a lot of phone calls from other healthcare organizations and headhunters. That said, most CSOs I rub shoulders with have been with their organizations for quite some time," he says. "That's because when you've worked with an organization and been part of shaping its direction, you become personally invested and it makes it extremely difficult to walk away."

Reprint HLR1113-5

This article appears in the November issue of HealthLeaders magazine.


Philip Betbeze is the senior leadership editor at HealthLeaders.

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