sectors continue to face unprecedentedchange and uncertainty, characterized byissues such as fluctuating demand forservice, new or unpredictable competitionand changing relationships andtechnologies. Services that society oncethought would always be available inabundance have become less accessibledue to resource constraints, rising costsand other factors. At the same time,society is holding businesses and serviceproviders to a higher standard, calling fornew leadership models and skills that canbetter anticipate and manage change overthe long-term.”

Houston adds, “In times like these,organizations will seek to repositionthemselves for risk and reward and somewill win and others will lose in thetransition. Those that are successfulunderstand that certain issues go beyondan organization’s social responsibility toprovide philanthropic support to addressthem. It is also the job of the board andorganizational leaders to identify thoseissues that translate into real businessproblems that require strategic solutions.”

In this environment, boards and otherdecision-makers should compare

1 WorkbookJ a n u a r y 2 0 0 9

Using Stakeholder Feedback to SetStrategy and Manage Risk“The purpose of a board is to represent and balance shareholderor stakeholder interests. Standing in for those to whom theorganization belongs, boards must decide and act as theirconstituents would if they had the time, energy, experience andknowledge to do so on their own behalf.” (Dennis Pointer andJames E. Orlikoff, Board Work, 1999.)

B Y T R A C Y E . H O U S T O N , J A M E S E . O R L I K O F F A N D M A R Y K . T O T T E NJ a n u a r y 2 0 0 9 T r u s t e e

Trustee

Trustee Workbook is made possible through the

generous support of

Hospital and health system boardshave long understood that their primaryresponsibility is to govern on behalf oftheir organization’s stakeholders.However, the Blue Ribbon Panel onHealth Care Governance’s 2007 reportsuggests that to what entity a health careorganization should report its stake-holders’ perspectives and needs, and theboard’s obligations to those stakeholdersare often less than clear.

In an environment of increasedexpectations for governance performanceand accountability, boards mustunderstand their stakeholders’ needs andconcerns in order to ensure that theirorganizations address them. In thisenvironment, savvy health care organiza-tions and boards, like their counterparts inother sectors, also leverage their under-standing of stakeholder perspectives andneeds to create strategic advantage andmanage risk.

Hospitals and health systems arebeginning to reach out to stakeholdersmore frequently. While many typicallyseek stakeholder perspectives as part oftheir strategic planning processes, somehospitals also check in with stakeholders

at least annually through surveys,interviews and assessments aimed atevaluating their perspectives on:

• Whether the organization acts inways that are consistent with its missionand values;

• How positively the organization isperceived in the community;

• The organization’s strengths and areaswhere improvement is needed;

• Opportunities and challenges facingthe organization;

• Initiatives or actions the organizationshould undertake; and

• Relationships the organization shouldcultivate or strengthen.

Once this information is gathered, thequandary, says Tracy E. Houston, aDenver-based board advisory consultantto energy companies and their boards, isto prioritize stakeholder concerns andaddress them in ways that help decision-makers create a sustainable future for theirorganizations.

“Hospitals, like electric utilities, arerooted in the needs and concerns of thecommunity and both provide a servicethat everyone requires,” Houston says.“However, the health care and energy

stakeholder feedback with theorganization’s overall strategy to helpidentify emerging priorities and create afocus for action, what Houston calls“strategic intent.”

“Strategic intent grows out of arelationship model that helps createstrategic intelligence to develop a richercontext for establishing organizationalpriorities and making decisions tominimize risk,” Houston says.

This strategic intelligence and riskreduction model has four features:

1. It includes internal and externalstakeholders, such as patients, employees,physicians, payers, donors, and legislativebodies and regulators.

2. It involves systematically gatheringand mapping feedback from thesestakeholders against the organization’sstrategies, culture and values.

3. It uses strategic and risk intelligenceto prioritize issues and concerns andidentifies opportunities where hospital andstakeholder needs and values align.

4. It shapes relationships as theorganization moves from a reactive to aproactive position.

Additionally, mapping stakeholderfeedback against an organization’sstrategies and values can have severalbenefits. This comparison can help:

• Increase an organization’s strategicagility to address areas of vulnerabilityfrom stakeholders.

• Expand the capacity to anticipate anddevelop strategies for businessopportunities.

• Enhance the ability to shareknowledge that can help an organizationreduce risk and meet stakeholder needs.

• Advance understanding of thedimensions or elements of strategy thatfoster collaboration and businessdevelopment.

Questions for Discussion1. What types of relationships does

your hospital or system have with itsstakeholders?

2. What information or feedback doesyour organization seek from itsstakeholders?

3. How does your organization gather,prioritize and share stakeholder data as asource of strategic and risk intelligencewith the board and other leaders?

4. What are your organization’sstakeholders saying today that mayindicate an opportunity or risk goingforward?

THE STR ATEGIC PERSPECTIVE

MAPPING STAKEHOLDER feedbackand comparing it with organizationalpriorities can deepen the context fordeveloping strategies and makingdecisions because the results provideinformation to help anticipate marketchanges and stakeholder preferences.

“This approach and the data itproduces have driven the consumer goodsindustry for many years,” Houston says.“Some larger consumer productscompanies, such as Procter & Gamble, arenow evolving this approach by observinghow products are used in the home todiscover emerging consumer preferencesand trends and drive research anddevelopment to create products thataddress them.”

Understanding stakeholder preferencesalso helps organizations better leverageexisting products and services. Think of

the many companies that analyze theircustomers’ Web site purchases and thenexpose them to new products they mayalso want to buy based on their previouslyidentified interests and purchasingpatterns. Houston points out, however, thatthese forward-looking approaches arelikely to be most successful inorganizations that value innovation andchange from a competitive advantagepoint of view. Yet, competitive advantagecan be interpreted more broadly thansimply emerging as a market leader orgaining market share for a product orservice. For example, hospitals that gatherstakeholder information could also use itto educate legislators and regulators aboutconsumer demands that are drivingresource needs and allocation to help morefavorably influence health care legislationor policy development.

However, in a dynamic, uncertainenvironment one thing is certain:organizations cannot adopt a fixeddefinition of issues, events and trends, anapproach Houston says is more commonin industries where scientific knowledgeand logic underlie product or servicedevelopment and delivery. In times of

T r u s t e e J a n u a r y 2 0 0 9

Characteristics of Boards that Effectively Deal with Stakeholder Issues

Seven hallmark traits and behaviors characterize a board’s ability to effectively dealwith stakeholder issues:

1. Curiosity2. An orientation toward the future3. An understanding that “the more you know after you know everything”

is the secret to success4. The mental flexibility and agility to weave together a vision and

possibilities for the future 5. A tendency to avoid oversimplifying6. The capability to combine disparate elements into a strategic view7. Promotion of “what if” conversations.The nature and pace of change also affect how organizations should react to it.

When the environment shifts from slow, evolutionary change to fast, revolutionarychange, Denver-based board advisory consultant Tracy E. Houston saysorganizations are best served by: acting aggressively where the benefits of doing soare clear; planting seeds for future expansion in highly uncertain areas; and workingto shape the stakeholder and regulatory landscape.

In today’s world of rapid change, she says, organizations are more likely to beoutperformed strategically rather than tactically. Therefore, the importance ofconstantly scanning and interpreting the strategic landscape cannot beunderestimated. The sidebar “Approaches to Strategy in Traditional and EmergingEnvironments” further describes these very different contexts and begins tosuggest the types of approaches needed to be successful in each.

change, organizations need to adopt aflexible mind-set and progressivelytranslate and interpret environmentalissues and trends through the lens ofongoing stakeholder input and feedback.

Moving from a fixed to a flexible mind-set requires new governance andleadership skills as well. (See sidebar,“Characteristics of Boards that EffectivelyDeal with Stakeholder Issues.”) Boardsand other organization leaders that are notflexible enough to interpret change to theiradvantage may even pose a risk to theirorganizations. According to Houston, forthese leaders, change and uncertainty cancause a “contracting mentality” where theymake strategic choices that will deliver acertain but possibly lower payoff ratherthan opting for strategies likely to deliveran uncertain but possibly higher payoff.

THE RISK PERSPECTIVE

STRATEGIC MAPPING OF stakeholderfeedback involves identifying andprioritizing both opportunities and threats.In considering the risk aspect ofstakeholder feedback analysis, boardsneed to understand that minimizingexposure is not all there is to riskmanagement. Creating risk intelligenceinvolves considering a variety of riskcomponents, such as exposure, theorganization’s ability to accurately assess

risk and how fast the organization cangain access to information and learn fromit to reduce potentially negative outcomes.

Risk can be divided into two categories:random and nonrandom risk. Random riskinvolves situations where an organizationwould not be able to learn anything thatcould help reduce uncertainty. Nonrandomrisk is associated with situations wherelearning can occur to help decreaseuncertainty. For example, learning that hasresulted from quality and patient safetyimprovement initiatives, application ofnew technology and other interventionshas helped reduce the nonrandom risk ofmedication errors in hospitals. On theother hand, there is very little that anorganization can do if a company in whichit has invested drops in its market value,creating random risk exposure for theorganization. It is helpful for organizationsto identify the risks they can learn aboutthe fastest to both reduce their riskexposure and learn about otherorganizations that are also taking this typeof risk.

The first step in moving from areactive to a proactive approach to riskassessment is to identify the types of risksfacing the organization and thencategorize them into random andnonrandom categories as shown on theattached chart that provides a tool forbetter understanding and managing risk.

Learning about stakeholder concerns

helps reduce risk and influence strategicdecision-making. Therefore, risksassociated with stakeholder needs andconcerns fall into the nonrandom category.Answering the questions below can helpboards, executives and clinical leadersbetter understand stakeholder needs andconcerns from a risk perspective.

Questions for Discussion1. What positive and negative

perceptions do our stakeholders haveabout the hospital?

2. Which stakeholder groups can helpour hospital expand its potential?

3. Which stakeholders are likely toreduce our hospital’s potential in thefuture?

4. What stakeholder risks is ourhospital managing today that it was notaddressing five years ago?

As part of the risk assessment process,Houston suggests that hospitals work toidentify and share with their boardsinformation about flashpoints, or potentialconflicts, that are likely to emerge betweenthe organization’s values and those of itsstakeholders. Hospitals that engage inongoing stakeholder feedback assessmentare more likely to uncover these conflictsthan those that do not. However, majorshifts in values more frequently occur aftersignificant events or an accumulation ofevents, such as a war or widespreaddisaster, a market crash or a series of high-

J a n u a r y 2 0 0 9 T r u s t e e

Approaches to Strategy in Traditional and Emerging Environments

Traditional Energy/Health Care Emerging Energy/Health Care

Definition Evolutionary Revolutionary

Environment Slow change Increased speed of emergenceLimited interdependencies Increased erosion of industry boundaries

Increased complexity/interdependencies

Opportunity Horizon Few but large opportunities Many diverse small opportunitiesCentralized, organized with Decentralized, unorganized without economy of scaleeconomy of scale

Strategic Agility Scenarios Pattern recognitionForesight Puzzle pieces recognized over time with addition of more pieces

New opportunities plus overall structure of where and how they fit together

Strategic Sensitivity Superior foresight of anticipated Foresight plus strong insightkey trends/changes/long period Combination of long and almost instantaneous change, i.e.,

immediate adoption of a new standard, commercialization of a new drug or the need to respond quickly to a new regulation.Calm with sudden burst of action

profile medical errors that result innegative patient outcomes. Understandingwhere and when flashpoints are mostlikely to occur can help hospitals takesteps proactively to reduce risk as well asto identify opportunities that can result instrategic advantage.

Once risks have been categorized,hospitals and their boards can thenprioritize them to decrease risk. A clearunderstanding of the organization’s cultureand values and how they do or do notalign with stakeholder values as well asthe nature of stakeholder concerns areboth essential to success at this stage ofthe analysis. One way to help establishpriorities, Houston says, is to look atstakeholder feedback from differentperspectives. For example, it can behelpful to determine whether stakeholderissues or concerns are aspirational innature, that is, are stakeholders seeking togain status or improve themselves, ratherthan simply meeting basic needs? Boardsand organization leaders can also assesswhether stakeholder feedback speaksstrongly to the features of a product orservice or the process of its delivery. Forexample, customers who purchase itemsat discount stores are more likely to careabout price rather than third-world laborpractices. Finally, it can be useful toidentify whether stakeholders care aboutimpact. For example, the community orenvironmental impact of a new hospitalprogram or facility may be high or low onthe list of stakeholder concerns.

Analyzing stakeholder feedback fromvarious perspectives can also help promptquestions that can lead to deeper insights.Questions might include:

• How well do our existing programsand services satisfy current and emergingstakeholder needs and concerns? Whatrisks does low alignment pose?

• Do we need to revise currentofferings or develop new ones to best

engage in discussion about the bestresponse to each risk on the list.Responses might include aligning withstakeholders where strategic opportunityexists; managing or addressing stake-holder issues that need attention over thenext year; or monitoring issues that do notrequire action today, but should remain onthe organization’s radar screen. Activelyaligning an organization with stakeholdervalues to achieve strategic advantage oftenrequires time for boards and leaders tobetter understand opportunities that mayor may not exist. Gathering additionalinformation or seeking input from outsideexperts, Houston says, can help decision-makers gain greater clarity. Ω

TRACY E. HOUSTON is a Denver-basedboard advisory consultant whose practicefocuses on leadership, strategy and riskmanagement. She can be reached attehouston@earthlink.net.

Gaining stakeholder feedback to achieve strategic advantage and minimize riskallows hospitals to enhance their ability to anticipate opportunities and threats, and to act ratherthan react to them. Comparing stakeholder values and concerns with an organization’s culture andvalues can also create awareness at the highest levels of where the organization and itsstakeholders align and where they do not. It also facilitates sharing of knowledge that canstrengthen strategy development and improve risk intelligence.

C O N C LU S I O N

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Reprint requests for 100 or more copiesshould be addressed to:Margaret Jablonski (312) 893-6890e-mail: mjablonski@healthforum.com

A Tool for Better Understanding and Managing Risk

Random Risk Nonrandom RiskPoliticalTechnologicalSocialEconomicFinancialMarketHuman ResourcesSystemsOperationalLegal

Considering elements that comprise each risk category identified on the left of the table can help

decision-makers better characterize the nature of each risk as random or nonrandom. For example,

considering where risks reside in the Human Resources category, such as an organization’s personnel

structure, compensation levels and practices, and leadership and succession planning processes can

help leaders determine the nature of the risk this category represents for their organization.

meet stakeholder wants and needs andminimize risk?

• How does what we have learnedabout our stakeholders affect theassumptions that underlie our hospital’sprograms, services and strategydevelopment? Do we need to revisit andperhaps revise these assumptions?

Board participation in this stage of theanalysis can be especially productive,Houston says, because board members areremoved from the hospital’s day-to-dayoperations and may see issues differentlyor more clearly than organizationalinsiders. Boards can be most helpful atthis stage by pushing their organizationstoward a more visionary mind-set.

Like personality styles, individual riskstyles vary, Houston says, so it is alsoimportant for boards to understand how itssenior management team prioritizes riskto ensure that board and senior leadershippriorities are aligned. This alignment willaffect both the type of information theboard receives and how the executive teamreports to the board.

Once risks are prioritized, boards,executives and clinical leaders can then