Stakeholder strategies for the physician executive.

If physician executives are to be effective in confronting the environmental turbulence and uncertainty facing their organizations, they must effectively manage their stakeholders. This article extends the stakeholder approach described in the May-June 1989 issue of Physician Executive as a tool for the physician executive in the development of practical strategies to cope with turbulence and uncertainty. We suggest four generic strategies physician executives can use: involve supportive stakeholders, monitor marginal stakeholders, defend against nonsupportive stakeholders, and collaborate with mixed-blessing stakeholders. As an overarching strategy, a physician executive should try to change the organization's relationships with a stakeholder from a less favorable category to a more favorable one. The stakeholder can then be managed using the generic strategy most appropriate for the category.

Stakeholders include those individuals, groups, and organizations that have an interest in the actions of the organization and the ability to influence its decisions and functioning. Key stakeholders are those who are likely to significantly influence decisions. In order to manage stakeholders effectively, physician executives must scan the environment for key external, internal, and interface stakeholders. Then they must make two critical assessments about these stakeholders: their potential for threat and their potential for cooperation on the issue at hand. The potential for threat and cooperation can range from high to low and can vary from one issue to another. For example, a stakeholder might be high in potential for threat and/or cooperation on one issue and low on another.

Types of Stakeholders

The two dimensions--potential for threat and potential for cooperation--map stakeholders into a diagnostic framework- Using these two dimensions, we can characterize four types of stakeholders as shown in figure 1, at right.

The Supportive Stakeholder

The ideal stakeholder is one who supports the physician executive's goals and actions. Such a stakeholder is low on potential for threat but high on potential for cooperation. Usually, for a wellmanaged organization, the board of trustees, managers, employees, and members of the local community will be supportive stakeholders.

The Marginal Stakeholder

Marginal stakeholders are high neither on threat nor on cooperation potential. Although they have a potential stake in the decisions of the physician executive, they generally are not relevant for most issues. For a well-run organization, typical stakeholders of this kind may include special interest groups, stockholders or taxpayers, and professional associations. However, certain issues, such as cost containment and medical ethics, could activate one or more of these stakeholders, causing their potential for either threat or cooperation to increase.

The Nonsupportive Stakeholder

Nonsupportive stakeholders are the most distressing for an organization and its physician executive. They are high on potential for threat but low on potential for cooperation. Typical nonsupportive stakeholders include competing hospitals or physician practices; freestanding alternatives, such as urgicenters or surgicenters; federal state, and local governments; investigative news media; and employer coalitions. The increasing number of indigent patients constitutes another source of important nonsupportive stakeholder.

The Mixed-blessing Stakeholder

The mixed-blessing stakeholder plays a particularly key role. Here, the physician executive is facing a situation where the stakeholder is high in both threat and cooperation potential. These stakeholders would include not only the medical/professional staff but also physicians not on the staff, insurance companies, insured patients, and organizations with complementary but not competing services. Medical/professional staff practitioners are probably the clearest example of this type of stakeholder.

Public hospital executives realize that Medicaid programs are sources of solid incremental revenues that help to meet many fixed costs. In many areas of the nation, however, the medical/professional staff will not accept Medicaid patients, thus depriving hospitals of a potentially important source of revenue. Although the staff may be protecting the hospital from providing excessive indigent care, the action is a mixed blessing, in that it also may deny the hospitals these partially funded patients. Not everyone will agree with the set of stakeholders we have used as examples for each type. There is a very good reason to be uncomfortable with such global classifications of particular stakeholders. Of all the possible stakeholders for a physician executive, the ones who will be relevant depend on the particular issue. The stakeholders who are concerned when the issue is cost containment will be different from those when the issue is access to health care. The diagnosis of relevant stakeholders in terms of the four types will probably be different on these two issues as well.

Generic Strategies for Stakeholder Management

Stakeholder diagnosis of the type attempted in figure I suggests some generic strategies for managing stakeholders with different levels of potential for threat and for cooperation. These strategies are shown in figure 2, page 4.

Involve the Supportive Stakeholder

By involving supportive stakeholders in relevant issues, physician executives can maximally exploit these stakeholders' cooperative potential Because these stakeholders pose a low threat potential, they are likely to be ignored as stakeholders to be managed, and their cooperative potential may be ignored as well.

Physician executives can operationalize the involvement strategy by using participative management techniques, by decentralizing authority to clinical managers and department heads, or by engaging in other tactics to increase the decisionmaking participation of these stakeholders.1 For example, they might invite clinical managers to participate in analysis and planning for eliminating redundant programs. The clinical managers win more likely become committed to achieving such an organizational objective than if they had not been involved in establishing it. A key requirement for the success of this strategy is the ability of physician executives to enlarge their vision of ways to further involve supportive stakeholders in higher levels of cooperation.

Nonmanagerial professional and support employees represent another class of stakeholders who belong in this category. Employees do not pose a great deal of direct threat to most organizations, although union activism or human resource shortages can make their continued service problematic under certain circumstances. Yet their cooperative potential may not have been fully tapped. Quality circles represent a straightforward example of the involvement strategy, presenting a means of managing employee relations and improving productivity that more closely links the employee to the organization and its objectives.2-3

Monitor the Marginal Stakeholder

Monitoring helps manage those marginal stakeholders whose potential for threat or cooperation is low. For example, numerous special interest groups are opposed to certain procedures, such as abortion or artificial implants, or are concerned about certain patient groups, such as the aged. Typically, these groups have only a marginal stake in the activities of the physician executive, affecting operations indirectly through advocating a moral or ethical standpoint. Taxpayers and stockholders also are marginal stakeholders. They are unlikely to be of much help or much hindrance unless the physician executive takes actions that activate them.

The underlying philosophy for managing marginal stakeholders is maintaining the status quo, with finances and management time kept to a minimum. The purpose of this approach is to not disturb them. Keeping them undisturbed, however, may require ongoing public relations activities and sensitivity to issues that could activate these groups' potential to threaten.

Defend Against the Nonsupportive Stakeholder

Stakeholders who pose high threat but whose potential for cooperation is low are best managed through a defensive strategy. The federal government and indigent patients are good examples of this nonsupportive stakeholder group. The defense strategy tries to reduce the dependence that is the basis for the stakeholders' interest in the organization. However, physician executives should not attempt to totally eliminate their dependence on nonsupportive stakeholders. Such efforts either are doomed to failure or may result in a negative image for the organization. For example, trying to sever all ties with the federal government is counterproductive and impossible if the organization hopes to serve federally assisted patients, such as the elderly. A public hospital that tries to deny access to indigent patients will almost surely be viewed negatively by the public, the local community, and the local government. An example of a more constructive approach would be to help indigent patients maximize their use of all possible entitlement resources, thereby moving them from nonpaying (nonsupportive) to at least partially paying mixed-blessing).

Another example of this defense strategy uses the federal government's regulatory agencies as stakeholders. The most appropriate tactic is to explore ways of complying with the demands imposed by the federal government at the least possible cost. DRGS (diagnosis-related groups) that produce a surplus for organizations define their areas of distinctive competence. Hence, they might adopt a case-mix approach to the delivery of health care, modifying the services they offer on the basis of the results of cost and process accounting.

This generic strategy can also take the form of driving out or reducing competition. On one hand, a physician executive might reduce competition by securing a dominant position over a particular market segment through PPO contracting. On the other hand, to reduce competition with urgi- or surgicenters, the physician executive could encourage acceptance of new ambulatory facilities. In these examples, the connection of stakeholder management to broader strategic management is very clear, involving many traditional marketing and strategic notions for handling competitors.

Collaborate with the Mixed-blessing Stakeholder

The mixed-blessing stakeholder, high on potential threat and potential cooperation, may be managed best through collaboration. If physician executives seek to maximize their potential for cooperation, these potentially threatening stakeholders with find that their supportive endeavors make it more difficult for them to oppose the organization. A variety of joint ventures or other collaborative efforts that would support the financial security of both the organization and staff physicians are possible.4-6

For example, a physician executive might propose joint equipment purchases by a hospital and its physicians, or a joint venture to build a freestanding surgicenter or imaging center. Such collaboration would discourage physicians from building a center themselves and thus competing with hospital-based surgery or diagnostic procedures and would prevent the hospital from being the sole beneficiary of the enterprise. It also dilutes the risk involved in the undertaking. The hospital can contribute its name and capital resources while the physicians will presumably send their patients to the hospital.

Given the current concern with limitation of services provided by hospitals because of the costs of liability coverage and limited Medicaid and other capitated program reimbursements, the potential for threat to the hospital of medical/professional staff practitioners no longer providing certain services is high. Collaboration by hospitals to fund a portion of the malpractice premiums for certain highrisk categories of physicians or other forms of collaboration may mean hospital profitability or even survival, especially in rural areas.

Insurance companies are another mixed-blessing stakeholder. Here the value of a collaborative strategy seems to be wen recognized. For example, Partners, the recent joint venture between Aetna Insurance and Voluntary Hospitals of America, involves the insurance company, the hospital, and medical staffs in a nationally marketed, collaborative PPO.7 Such a PPO may even help a participating hospital manage a normally nonsupportive stakeholder, such as an employer.

Other members of administration maybe mixed-blessing stakeholders for the physician executive on a particular issue--for example, the CFO on financial effectiveness versus quality of care issues. This situation requires collaborative strategies to enhance one's relationship with other members of administration as well as with other physicians. Resolving these difficult relationship issues is crucial if the physician executive is to be effective in enhancing hospital-physician relations.9-9

For the mixed-blessing stakeholder, effective collaboration may wen determine the long-term stakeholder-physician executive relationship. If this type of stakeholder is not properly managed through a collaborative strategy, it could become a nonsupportive stakeholder.

An Overarching Strategy

In addition to using the strategies specifically tailored for stakeholders who are classified into one of the four diagnostic categories, physician executives may also employ an overarching strategy to move the stakeholder from a less favorable category to a more favorable one. Then the stakeholder can be managed using the generic strategy most appropriate for the new diagnostic category.

For example, rather than simply defend against the news media as a nonsupportive stakeholder, a physician executive could implement an aggressive program of openness with the media. If this approach is successful, the program would change the news media to a marginal stakeholder, allowing it to be managed through a monitoring strategy.10

Of course, stakeholders generally will not just sit still and be managed. Stakeholders who are powerful, and hence threatening, are as likely to try to manage as be managed. Many organizations and their stakeholders continuously engage in management and countermanagement strategies, often leading to direct negotiations." To manage these stakeholders effectively, physician executives should continuously identify them and match their diagnosis with appropriate strategies.

Using the Stakeholder Management Approach

The following example illustrates the use of an explicit stakeholder management approach by a physician executive. For simplicity, only a selected few of many potential key stakeholders will be considered. The physician executive's hospital is scheduled for a survey by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). The physician executive might first identify the many internal, interface, and external stakeholders who would have a direct or indirect interest or involvement in the process. The director of medical records is an internal stakeholder, the medical/ professional staff is an interface stakeholder, and the JCAHO is an external stakeholder, as are other hospitals in the system.

The physician executive has primary reasponsibility or stakeholder management of the medical/professional staff and the director of medical records, secondary responsibility for the JCAHO, and minimal responsibility for the other system hospitals. He or she is expected to maintain cooperative and supportive linkages with the medical/professional staff and to ensure optimal internal organization and operation of the medical records department in support of hospital quality assurance and utilization review goals. The physician executive also is charged with developing and maintaining efficient and effective lines of communication, especially concerning quality of patient care issues, with regulatory and accrediting agencies such as the JCAHO as well as with other health care institutions, e.g., other system hospitals.

Using the diagnostic typology illustrated in figure 1, the physician executive should be able to classify the four stakeholders on their potential for threat based on their relative positional power and resource-control power, as well as to evaluate their potential for supportive (versus oppositional) action in regard to the issue of the accreditation survey. Therefore, the physician executive might classify the director of medical records as a supportive key stakeholder, the medical/ professional staff as a mixed-blessing key stakeholder, the JCAHO as a nonsupportive key stakeholder, and the other system hospitals as marginal, but probably supportive, stakeholders.

The physician executive, to manage these four stakeholders, should take into account his or her degrees of dependence and/or vulnerability with regard to each of them, levels of responsibility for management of them, and appropriate strategies (see figure 2) to be employed. With primary responsibility for stakeholder management of the director of medical records and the medical/professional staff, the physician executive would be well advised to involve the director of medical records in a management role in preparing for and participating in the survey. By collaborating with staff practitioners through orientation briefings and discussions regarding the accreditation process, presurvey preparation, the significance of JCAHO accreditation as a measure of the quality of patient care rendered by the medical/professional staff, and the need for supportive cooperation by the staff, the physician executive could move the medical/professional staff into the supportive stakeholder classification with regard to this particular issue. The physician executive might monitor the other system hospitals by inquiring how they fared in their most recent accreditation surveys by the JCAHO and what areas were of apparent special interest to the JCAHO survey team. If other hospitals agree to provide significant help and detailed documentation, the physician executive will have moved them from marginal to key supportive stakeholders. By these and other explicit stakeholder management strategies, the physician executive facilitates preparations for the accreditation survey, thereby allowing him or her to defensively manage the potentially high threat JCAHO stakeholder by being able to satisfy the scrutiny of its survey team.

Conclusion and implications

To survive the revolutionary changes facing the health care industry, physician executives must better manage their internal, external, and interface stakeholders. They have to rethink their strategies and operations as they face increasing, and potentially conflicting, demands for effectiveness and efficiency from these stakeholders. In short, they must minimally satisfy the needs of marginal stakeholders while they maximally satisfy the needs of key stakeholders.

To satisfy key stakeholders, physician executives must first seek out those stakeholders who are likely to influence key decisions. Then they must make two critical assessments about these stakeholders: their potential to threaten and their potential to cooperate. When determining the stakeholder's orientation, the physician executive should account for such factors as its relative power, the specific context and history of his or her relations with it, and its relationship with all other key stakeholders. The stakeholder's orientation discloses whether it is supportive, marginal, nonsupportive, or mixed blessing. As an overarching strategy, the physician executive should try to change the organization's relationships with the stakeholder from a less favorable category to a more favorable one. Then, the stakeholder can be managed using the generic strategy most appropriate for the new diagnostic category. Physician executives should involve supportive stakeholders, monitor marginal stakeholders, defend against nonsupportive stakeholders, and collaborate with mixed-blessing stakeholders.

In summary, physician executives need to do more than merely identify stakeholders or react to stakeholder demands. They must develop or enhance their capacity for strategic stakeholder management rather than concentrating only on effectively dealing with a particular stakeholder on a specific issue. They should establish goals for their relationships with stakeholders as part of an effective strategic management process.11-12

To aid in this endeavor, future medical management research and practice should focus on:

Analyzing stakeholders' stakes and power.

* Identifying stakeholders' critical dimensions.

* Finding ways to facilitate physician executives' ability to challenge their own assumptions.

* Examining how physician executives may negotiate effectively with stakeholders.

* Creating and assessing strategies to enhance cooperation with stakeholders.

References

1. Counte, M., and others. "Participative Management among Staff Nurses." Hospital and Health Services Administration 32(l):97-108, Jan.-Feb. 1987.

2. Cornell, L. Quality Circles: A New Cure for Hospital Dysfunctions?" Hospital and Health Services Administration 29(5):88-93, Sept.-Oct. 1984.

3. McKinney, M. "The Newest Miracle Drug: Quality Circles in Hospitals." Hospital and Health Services Administration 29(5):74-87, Sept.-Oct. 1984.

4. Shortell, S., and others. Hospital-physician Joint Ventures: Results and Lessons from a National Demonstration inprimary Care. Ann Arbor, Mich.: Health Administration Press, 1984.

5. Mancino, D. "Hospital-physician Joint Ventures: Some Crucial Considerations." Hospital Progress 65(l):30- 35, Jan. 1984.

6. Snook, I., and Kaye, E. A Guide to Health Care Joint Ventures. Rockville, Md.: Aspen Systems, 1987.

7. Coddington, D., and Moore, K. Market-driven Strategies in Health Care. San Francisco, Calif.: Jossey-Bass, 1987.

8. Gill, S. "Can Doctors and Administrators work Together?" Physician Executive 13(5):11-16, Sept.-Oct. 1987.

9. Bettner, M., and Collins, F. "Physicians and Administrators: Inducing Collaboration." hospital and health Services administration 29(3):15160, May-June 1984.

10. Fitzgerald, P., and Wahl, L. "Media Relations: Clues for Improvement." Hospital and Health Services Administration. 32(l):39-47, Jan.-Feb. 1987.

11. Blair, J., and others. "A Strategic Approach for Negotiating with Hospital Stakeholders." Health Care Management Review, in press.

12. Shortell, S. "High Performing Healthcare Organizations: Guidelines for the Pursuit of Excellence." Hospital and Health Services Administration 30(4):7-35, July-Aug. 1985.

T H E A U T H O R S

Carlton J. Whitehead, Phd, is Professor of Management College of Business Administration, and Professor of Health Organization Management, School of Medicine, Texas Tech University; Susan Y. Stanton, MBA, PAC, is instructor in Health Organization Management and Executive Director, Department of Obstetrics and Gynecology, School of Medicine, Texas Tech University Health Sciences Center; John A. Buesseler, MD, MSBA, is Professor of Ophthalmology and Professor of Health Organization Management, School of Medicine, Texas Tech University Health Sciences Center; and John D. Blair, Phd, is Professor of Management College of Business Administration, and Associate Chairman, Health Organization Management Department, School of Medicine, Texas Tech University, in Lubbock, Tex. This article is an adaptation and extension for physician executives of John D. Blair's and Carlton J. Whitehead's article, "Too Many on the Seesaw: Stakeholder Diagnosis and Management for Hospitals," Hospital and Health Services Adminatration 33(2):153-66, Summer 1988.

Reading

The following additional sources of information on stakeholder management were obtained through a computerized search of databases. Copies of cited articles may be obtained from the College for a nominal charge. For further information on the citations, contact Owen Zins, Director of information Services, at College headquarters, 813/287-2000.

Blair, J., and others. A Strategic Approach for Negotiating with Hospital Stakeholders." Health Care Management Review 14(l):1323, Winter 1989.

Charan, R., and Freeman, E. "Stakeholder Negotiations: Building Bridges with Corporate Constituents." Management Review 68(11):8-13, Nov. 1979.

Cornell, B., and Shapiro, A "Corporate Stakeholders and Corporate Finance." Financial Management 16(l):s-14, Spring 1987.

Exley, C. "The Masterstroke of Managing for Stakeholders." Directors and Boards 13(l):4-7, Fall 1988.

Finlay, J' Ethics and Accountability: The Rising Power of Stakeholder Capitalism." Business Quarterly 51(l):56-63, Spring 1986.

Freeman, R., and Reed, D. "Stockholders and Stakeholders: A New Perspective on Corporate Governance." California Management Review 25(3):88-106, Spring 1983.

Richards, L, and Cormier, T. Stakeholder Management." Best's Review (Life/Health Insurance Edition) 84(i):32-6, May 1983.

Sturdivant, F. "Executives and Activists: Test of Stakeholder Management." California Management Review 22(4):53-9, Fall 1979.

Weiner, E., and Brown, A "Stakeholder Analysis for Effective issues Management." Planning Review 14(3):27-31, May 1986.