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Stakeholder issues for the physician executive.

If physician executives are to cope with the environmental turbulence and uncertainty facing their organizations, they must effectively manage their "stakeholders." The stakeholder approach helps integrate managerial concerns that are frequently treated separately, such as strategic management, marketing, human resource management, "organizational politics," and social responsibility. The stakeholder perspective enables medical managers to relate important issues to the development of strategies for handling potentially conflicting demands for effectiveness and efficiency from various stakeholders. Medical managers should minimally satisfy the needs of marginal stakeholders while they maximally satisfy the needs of key stakeholders. To identify key stakeholders, a physician executive should critically assess each stakeholder's potential to threaten the organization and its potential to cooperate. This assessment should account for such factors as the stakeholder's relative power, the specific context and history of the organization's relations with it, the specific issues under consideration, and other key stakeholders influencing the organization.

Although many physicians and other health care professionals balk at describing health care as an industry, it is a fact that health care has become big business. Moreover, it is changing from a relatively sheltered, noncompetitive, high-growth industry to a low-growth, competitive one.1 The complex problems resulting from these changes are compounded by the shift to capitated systems and prospective pricing systems for Medicare, Medicaid, and other third-party payers.1 These changes pose numerous problems for physician executives who are attempting to satisfy health care cost containment and profit generation issues while preserving the integrity of the physician-patient relationship. An industry undergoing a change from high growth to low growth tends to put survival first and qualitative growth second. Superimposed upon this scenario is the public's perception that everyone has a right to high-quality health care, with its accompanying sophisticated, expensive technology. In short, the health care industry is experiencing fundamental, turbulent, and revolutionary changes.3

The concept of organizational stakeholders is becoming increasingly important to the analysis of the forces affecting organizations and their managers.4-7 Stakeholders are those individuals, groups, or organizations that have an interest in the actions of an organization and that have the ability to influence those actions. Because medical managers in policy-making roles in health care organizations affect stakeholders through the policies and actions they pursue, they must become better able to manage their relationships with relevant stakeholders.

With specific reference to hospitals, most stakeholders are dearly either internal to or external to the institutions. Internal stakeholders, for example, include employees as well as clinical managers; external stakeholders include the federal government and other hospitals. However, some key stakeholders are neither dearly internal nor external but reside on the interface between the hospital and its environment. The hospital's governing board or its medical/professional staff typify these interface stakeholders. Each of these stakeholders has expectations for the hospital and its managers and can oppose or support its actions. Hospital Physician Executives In this article, we will focus on a specific physician executive role-the hospital-based manager--to illustrate the nature of stakeholder management. We conform to the generally accepted definition of a hospital physician executive as a manager employed by the hospital and reporting directly to the chief executive officer. This position may have the title of medical director, director of medical affairs, chief of professional services, or, in keeping with the current shift to corporate titles, vice president for medical affairs." The hospital-based physician executive is simultaneously a member of the hospital administration and, in most instances, a member of the medical staff. Thus, he or she is a so-called "marginal man," caught between two groups with commitments to each.

The hospital physician executive is a manager (as are others in the adminstration) in the traditional sense of planning, organizing, staffing, directing, budgeting, and controlling. In addition, the physician executive is expected to be the integrator of the patient care processes and to assist the hospital in dealing with the total health care environment. He or she is involved in the development of external linkages with regulatory and licensing agencies, other health care institutions, and patient groups. The physician executive also has considerable responsibilty for the acquisition and optimal internal organization of health care personnel into effective and efficient health care teams. Capital equipment acquisition is also part of the physician executive's role, as is the overall coordination, monitoring, and evaluation of the care process. Most important, the physician executive is expected to further the establishment and maintenance of linkages with physicians, particularly those on the hospital's medical/professional staff?

The physician executive, as a leader, must explore the forces affecting institutional change, the likely direction of those forces, and the relative effectiveness of various strategic responses to those forces. Thus, the role of the physician executive is rapidly evolving as one of the most important positions in the health care system and requires specialized managerial skills that are quite different from those of clinicians. The degree to which physician managers are able to exhibit this type of leadership will determine the boundaries of their roles. Physician managers can be instrumental in improving the internal management of the organization and in forming policies that will guide the health care system.11-11

The Physician Executive as a Manager of Hospital Stakeholders

The physician manager may often feel that he or she is standing in the center of a circle of people, all of whom are making demands of time, attention, decisions, and/or actions. Many of those around the circle are from within the organization. They are fellow physicians, nurses, administrators, department heads, and patients. Others are external to the organization and represent regulatory agencies, medical societies, practice groups, other hospitals, news media, third-party payers, and the public, all of which can exert considerable pressure on the institution generally and on the medical director in particular. Internal and external demands and pressures between and among these stakeholders create a dilemma for the physician manager.

For example, the public-an external stakeholder--increasingly sees health care as a right. It expects both the quality of and the access to medical care to increase irrespective of an individual's ability to pay for services. Many health care professionals support the public's expectations. Physicians, nurses, therapists, and other internal stakeholders believe they should do everything possible to improve the health of as many people as possible using every available means. On the other hand, external stakeholders, such as federal and state governments, insurance companies, employers, and patients whose deductibles and copayments are increasing, expect hospital administrators to contain the costs of providing this health care. Many stakeholders maintain a fluid position with mixed loyalties. Medical/ professional staff members engaging in external independent or joint ventures may pose threats to the quality and the quantity of work performed at the hospital.

The Physician Executive's Stakeholder Seesaw

This stakeholder perspective is analogous to a seesaw with too many people on one end, all of whom want to push off independently. Physician executives must continually attempt to balance conflicting stakeholder demands and pressures to keep the mechanism running smoothly.7 This balancing problem is increasing because the number of stakeholders and their influence on physician executives is increasing. 12 For example, patients were passive stakeholders until this decade. Low competition and relatively abundant resources allowed physicians to make most of the key decisions regarding patient care. Now the consumer is a major stakeholder, and marketing programs are directed at individual consumers as well as at employers. Twenty years ago, such stakeholders were practically nonexistent.

The stakeholder seesaw facing the physician executive can be seen more clearly in figure 1, next page. This figure depicts a hypothetical map for key external and interface stakeholders in a multi-unit religious hospital. Key business strategies for this type of institution often include diversification, aggressive marketing, downsizing some units, and developing centers of excellence. The church or religious order affects the hospital through its ability to approve trustees to the system board and to the hospital board. In some cases, the church also provides some funding and becomes more directly involved in policy decisions. Because both are part of a multi-unit system, the corporate office is a major stakeholder for each individual hospital. The corporate office approves budgets, strategic plans, and key executive appointments. It holds individual hospitals accountable for achieving particular corporate goals and objectives. Of course, the hospital also receives certain system services (and functional directives), such as personnel policies and procedures.

Patients are referred to the individual hospital by both the medical staff and other community physicians as wen as through HMOs and/or PPOs. The individual hospital cooperates with other system hospitals through such mechanisms as joint purchasing agreements. They also interact with competitive, nonsystem hospitals both by competing for the same markets and by sometimes cooperating through joint ventures. Joint ventures with members of the medical/professional staff also are becoming more common (an issue we will discuss later in this article).

Figure 1 identifies more than simply the hospital's key external and interface stakeholders. The lightly shaded rectangles in the figure represent the hospital stakeholders for which the physician executive has primary responsibility. In other words, one essential part of the physician executive's role is to "manage" these stakeholders. (In a later section of this article, we will look at strategies to do just that.) The physician executive also has secondary responsibility to manage certain other stakeholders, as indicated in figure 1 by the rectangles with vertical rules. In these cases, the physician executive is expected to help manage these stakeholders, but participates equally in a joint effort to do so or supports some other manager who is primarily responsible.

The physician executive has quite limited responsibility in managing the remaining stakeholders (those rectangles with no shading). These may be key stakeholders for the hospital, but they are not key stakeholders for the physician executive. One might imagine that the seesaw would be more than full already. However, the physician executive also has internal stakeholders to deal with. In figure 2, page 12, we present a hypothetical internal stakeholder map with some of the key stakeholders a physician executive would confront as part of his or her management responsibility. On the right side are other members of the administration. In particular, the chief executive officer (CEO) has a key stake in the behavior and effectiveness of the physician executive. Indeed, the physician executive will serve to a greater or lesser extent exclusively at the pleasure of the CEO.

Other key administrative stakeholders are the chief operating officer (COO) and chief financial officer (CFO). The physician executive will be very concerned with the ongoing operations of the hospital, and the COO will be equally concerned about the effectiveness of the physician executive in ensuring contributions from the medical staff (and perhaps other clinical professionals) in making those operations effective. The CFO may be the primary force for cost-containment within the hospital and provide a clear alternative to the physician executive's presumably primary focus on quality of care. Managing relationships with these key stakeholders is crucial for the physician executive.

On the left side of figure 2 are others who have a key stake in the activities and decisions of the physician executive, especially with regard to his or her primary interface stakeholder, the medical/professional staff. The director of medical records will be concerned on an ongoing basis with the accuracy, completeness, and timeliness of the medical/professional staff's charting and documentation. The director of quality assurance/utilization review will be concerned with the efficient use of resources and the quality of medical care delivered by the medical/ professional staff. The directors of various other clinical professions, such as nursing, pharmacy, medical technology, and social work, will have a stake in the physician executive's orientation to cooperation with and recognition by the medical/professional staff.

Hospital physician executives will need to rethink their strategies and operations as they face increasing, and potentially conflicting, demands for effectiveness and efficiency from these, and perhaps other, internal, external, and interface stakeholders. For example, although much of the health care management literature focuses on how to enhance, efficiency and effectiveness, effective managers do not try to either minimize costs or maximize quality for all stakeholders. Rather, they attempt to minimally satisfy the needs of marginal stakeholders and maximally satisfy the needs of their key stakeholders. Stakeholder Management Perspective and Diagnostic Framework Stakeholder management integrates in a systematic way what managers often deal with separately: strategic management, marketing, human resource management, public relations, organizational politics, and social responsibility. This integrative perspective assumes that an organization requires some degree of consensus among key stakeholders about what it should be doing and how it should be done. To manage stakeholders, physician executives must be involved in a continual process of internal and external scanning when making strategic decisions. They must go beyond the traditional issues in strategic management, such as the likely actions of competitors or the attractiveness of different markets. Physician executives must also look for those external, internal, and interface stakeholders who are likely to influence their decisions.

Physician executives need to make two critical assessments about these stakeholders:

*The stakeholder's potential to threaten the hospital (or the physician executive).

*The stakeholder's potential to cooperate with the hospital (or the physician executive)

Diagnosing the Stakeholder's

Potential for Threat

Hostility or threat often appears as a key variable in formulating organization-environment-strategy relationships. Medical/professional staff practitioners, for example, are sometimes explicitly identified as potential threats to effective strategic management by hospitals and their physician executives. Looking at the potential threat of stakeholders is similar to developing a "worst case" scenario, and protects managers from unpleasant surprises.

The stakeholder's relative power and its relevance for any particular issue confronting the physician executive determines the stakeholder's potential for threat. Power is primarily a function of the dependence of the manager on the stakeholder. Generally, the more dependent the manager, the more powerful the stakeholder. For example, the power of medical/professional staff practitioners is a function of the hospital's dependence on those practitioners for patients and the provision of hospital services. Diagnosing the Stakeholder's Potential for Cooperation Because stakeholder analyses emphasize the types and magnitudes of threats that stakeholders pose for the physician executive, the potential for cooperation often is ignored. It should be equally emphasized, because it allows stakeholder management strategies to go beyond merely defensive or offensive strategies. The physician executive's need to find cooperative potential is particularly relevant because it may allow him or her to join forces with some stakeholders in order to obtain better control of their respective environments.

Assessing the potential for cooperation is similar to creating a "best case" scenario. The stakeholder's cooperative potential is a function of the stakeholder's degree of dependence on the physician executive and its relevance to the particular issue facing the physician executive. Generally, there is a direct relationship between the degree of dependency and the potential for cooperation. Often, however, the physician executive and the stakeholder may be very interdependent. For example, in a hospital with a full medical/ professional staff and with appointment to it hard to attain, the physician executive and the medical staff usually have high levels of mutual dependence. Although the physician executive may encounter potential threats from physicians who object to certain regulatory directives, he or she may also have cooperation from physicians who want to keep their coveted position on the staff.

Factors Affecting the Potentials for Threat and Cooperation

Several factors affect the level of a stakeholder's potential for threat or cooperation, and physician executives should examine them carefully. Some of the factors are concerned with the relative general power of the stakeholder vis-a-vis the physician executive , or with specific power resulting from control over key resources." Others concentrate on the kind of action the stakeholder might take. Is that action likely to be supportive or oppositional? Is the stakeholder likely to form a coalition with other stakeholders or with the physician executive? Exactly how a factor will affect the potential for threat or cooperation depends on the specific issue, the specific context and history of the physician executive's relations with that stakeholder, and his or her relations with other key stakeholders. For example, a physician executive may be able to assess the cooperation or threat potential of the medical/professional staff only in the context of how competing physician executives are managing their staffs and in the context of past medical/ professional staff relationships. By carefully considering such factors, physician executives can fine-tune their analyses of stakeholders.

Issue-Specific Stakeholder Diagnosis

There may be literally dozens of potential stakeholders for a physician executive. The stakeholders who will be relevant depend on the particular issue. If the issue is cost containment, the stakeholders who are concerned will be different than if the issue is access to health care. The diagnosis of the relevant stakeholders in terms of the four stakeholder types will probably be different on these two issues as well. Also, stakeholder characteristics may change depending on the issue under scrutiny.

To illustrate how stakeholder diagnosis is issue-specific, take the case of a physician executive's perceived need for increasing the managerial efficiency and effectiveness of the clinical department of nursing by computerization of its administrative records. By involving the director of the nursing department in the decision-making process, the physician executive might not only secure the director of nursing as a generally supportive stakeholder but also heighten that support to strong cooperation while reducing the director's threat because of possible resentment of having a system imposed on the nursing department.

In a similar way, the physician executive may seek the collaboration of the medical/professional staff stakeholder in defining the need for and benefits of a computerized management system for the department of nursing. This collaboration will be more likely to shift the medical/professional staff, with its high potential for both threat and cooperation on this issue, to a supportive posture. Because the acquisition of a computerized management system is costly, the issue may be sufficient to cause the physician executive to diagnose the usually supportive CFO as being potentially nonsupportive. To prevent the CFO from becoming nonsupportive on this issue, the physician executive might involve the CFO in the decision-making process along with the supportive input from the director of nursing and members of the medical/ professional staff.

This issue specifically suggests that stakeholder diagnosis is an ongoing, iterative activity. Physician executives cannot assume that a stakeholder who is supportive on one issue will be so on every issue, or that a stakeholder who is nonsupportive on one issue will be so on another. Stakeholders are sources of both opportunity and danger.

Moreover, whatever the classification of a particular stakeholder on a specific issue may be, physician executives should explicitly classify stakeholders to surface managerial biases. For example, if a physician executive identifies all stakeholders for any particular issue as nonsupportive, then he or she should critically examine and assess his or her position on the issue and relationships with key stakeholders.

Conclusion and Implications

To survive the turbulent and 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, physician executives 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 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, physician executives should account for such factors as its relative power and the specific context and history of the physician executive's relations with it and with all other key stakeholders.

In the next issue of Physician Executive, using the above diagnostic framework, we will identify types of stakeholders based on the two dimensions of potential for threat and potential for cooperation. We will also discuss appropriate stakeholder management strategies that the physician executive can use to deal with the various stakeholder types. Stakeholder management will allow physician executives not only to identify stakeholders, but also to assess their potentials and proactively develop practical strategies. These strategies will enable the physician executive to change the organization's relationships with certain key stakeholders from a less favorable stance to a more supportive position.


1. Coddington, D., and Moore, K. Market-Driven Strategies in Health Care. San Francisco, Calif.: Jossey-Bass Publications, inc., 1987.

2. Smith, H., and Fottler, M. Prospective Payment. Managing for Operational Effectiveness. Rockville, Md.: Aspen Systems Corp., 1985.

3. Johnson, E., and Johnson, R. Hospitals under Fire: Strategies for Survival. Rockville, Md.: Aspen Systems Corp., 1986.

4. Mason, R., and Mitroff, 1. Challenging Strategic Planning Assumptions. New York, N.Y.: John Wiley and Sons, 1981.

5. Freeman, R. Strategic Management.- A Stakeholder roach. Marshfield, Mass.: Pitman Publishing, 1984.

6. Fottler, M. "Health Care Organizational Performance: Present and Future Research." Journal of Management 13(2):179-203, Summer 1987.

7. Blair, J., and Whitehead, C. "Too Many on the Seesaw: Stakeholder Diagnosis and Management for Hospitals." Hospital and Health Services Administration 33(2):153-66, Summer 1988.

8. Williams, K. "The Role of the Medical Director." Hospital Progress 59(6):50-7, June 1978.

9. Slater, C. "The Physician Manager as an Integrative Professional." In The Physician in Management. Tampa, Fla.: American Academy of Medical Directors, 1980, pp. 101-6.

10. Kralewski, J. "The Physician Manager and the Evolving Health System." In The Physician in Management. Tampa, Ra.: American Academy of Medical Directors, 1980, pp. 1-18.

11. Hodge, R. and Nash, D. "The Physician Executive." In Future Practice Alternatives in Medicine. New York, N.Y.: Igaku-Shoin, 1987, pp. 235-64.

12. Cohn, R. "Who's Running the Ship of Medicine?" Physician Executive 13(5):17-9, Sept.Oct. 1987.

13. Mintzberg, H. Power In and Around Organizations. Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1983.


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; John A. Buesseler, MD, MSBA, is Professor of Ophthalmology and Professor of Health Organization Management, School of Medicine, Texas Tech University Health Sciences Center; Susan Y. Stanton, MBA, PAC, is instructor in Health Organization Management and Director, Maternal and Infant Health Improvement Program, School of Medicine, Texas Tech University Health Sciences Center; and Carlton J. Whitehead, PhD, is Professor of Management, College of Business Administration, and Professor of Health Organization Management, 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 Administration 33(2):153-66, Summer 1988.

Further 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 Gwen Zins, Director of information Services, at College headquarters, 813/ 287-2000.

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):5-14, Spring 1987.

Finlay, J. "Ethics and Accountability: The Rising Power of Stakeholder Capitalism. " Business Quarterly 51 (1):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(l):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.
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Author:Whitehead, Carlton J.
Publication:Physician Executive
Date:May 1, 1989
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