Question

Using the organization you selected from your Business Plan "University Medical Center of Southern Nevada", consider what corporate portfolio strategy the company uses or what you imagine they use and why? What are the benefits to the selected corporate portfolio strategy compared? What is the role of the corporate center and Strategic Business Unit (SBU)?

Answer 1

Let's begin with Corporate Center:

There are numerous factors currently responsible for placing heavy demands on corporations and their senior executives.

Companies are in a state of perpetual structural flux, resulting in the increased need for engagement on organisational redesign.

Historically, smaller scale changes often provided sufficient scope to drive the leverage required for meeting new targets, competitive market challenges and desired outcomes. However, today’s organisations can require a complete redesign in order to improve performance, meet objectives and deliver on targets.

As part of those organisational design decisions, determining which role the corporate centre should play can add significant value to an organisation. This must be balanced against the risk that the consequence of the centre playing the wrong role can be dire and lead to negative and sustained impact on the bottom-line.

Not only is there a significant loss of time and investment but the direction, focus and morale among senior executives becomes undermined.

The corporate centre does not have to select a single role to apply uniformly across all business units or functions. It should instead select the role that matches the organisation’s unique situation and will generate the most value.

We look at the how a corporate centre can adapt the role it plays across various business functions.

Form must follow function

The first step to defining the role of a value-adding corporate centre is to define both the short and long-term strategic goals of the company. Only then can the role of the corporate centre be evaluated.

There is no absolute or prescribed paradigm for success for every organisation. The unique mix of the organisation’s people, culture, strategy and resources requires a customised solution to questions around governance, allocation of decision-making and definition of the role of the corporate centre.

It is important to scope the definition of roles from the perspective of the value created for the company. The organisation may need to transform major business functions in order to harness this value.

Such thinking forms the basis in determining the role of the corporate centre. Transforming the strategy into reality also requires designing a centre whose structure, people and processes support the strategy.

The role of the corporate centre

The optimal corporate centre strategy must be aligned with the needs of the business units and the functionality required from the corporate centre. For example, in a more mature industry a company may prefer to leave more autonomy to the divisions.

The innate culture of a successful organisation must be given consideration and this may restrict the scope of changes and the level of autonomy of business units.

The flexibility of the corporate centre may also be restricted, with its requirements to comply with local legal requirements, labour laws, taxation and its obligations to investors.

To achieve a lean and effective corporate centre, its architecture must be built with rigor and a defined allocation of responsibilities between the centre and business units across different dimensions such as its business lines, customer types, and geographical factors.

This requires a detailed understanding of the strategic issues for each business line, as well as the required level of autonomy for each business and function.

The three key questions

When evaluating the relevance and scope of a corporate centre re-design, we typically ask three key questions.

1. What are the organisation’s long term and short term strategic goals?
2. Which corporate centre role adds the most value to each function in the organisation?
3. How will the corporate centre engage with the rest of the business?

Corporate centre roles

An effective corporate centre has a clear focus on those activities that add the most value to the organisation.

In determining the key drivers that will shape the strategy, companies need to drill down to identify the levers that will achieve this value, including its business synergies, financial planning, optimal operational practices and the development of its business strategies.

As a tool for understanding we have drawn an analogy between the management of sports teams and the various roles a corporate centre may play across business functions.

The challenge is picking the role that adds the most value to the organisation.

1. The board member / financial backer role

Involved mostly in the key decisions, provides funding for and authorises major investments, sets the financial targets and organisational objectives of the business unit or function.

2. The referee role

Sets the rules by which business units or functions interact, develops and manages the service level agreements. Makes sure all the rules are followed. Makes sure different business units are operating well together.

3. The coaching role

Encourages synergy among the business units or functions. Sets the strategy and roles of the business units. Evaluates performance during the year and makes necessary adjustments to correct. Empower employees to play an effective role in the overall value chain of the organisation and deliver value to customers.

4. The player role

In this instance the corporate centre is effectively “on the field” providing the service. They will set the objectives, direct activity and take accountability for success and failure. Functions may not necessarily be performed by the corporate centre, for example low value, transactional work may be outsourced if this makes sense.

Examples of role definition

Large group of unrelated companies

The main sources of revenue are different, the companies service different markets and they have different corporate cultures.

In this instance the group was best served by a lean corporate centre, providing guidance and setting group wide objectives.

The group did not exist to provide any synergies between companies, but a decision was made to search for talent within the organisation first.

Value was seen in centralising the legal function due to a relatively weak legal function in a number of the companies with low productivity.

Large group of similar companies

In the group above, the companies have businesses that are much more related, operating in the same industry.

In this instance value was obtained by centralising a number of functions to be executed by the corporate centre. All low productivity functions that were similar across business were centralised to improve efficiency and reduce cost.

Value was also extracted by the centre being more involved in setting corporate policies and processes as well as driving the rules of engagement on intercompany dealings.

Small group of very similar companies

The organisation above has a number of very similar businesses. Had it not grown through acquisition it may have existed as a single company.

A far greater level of control is exercised in the corporate centre, freeing the business to get on with the core value producing activities. The centre acted as a supplier of expertise and services.

In the case of R&D, holding this function in the centre allowed for a bigger pool of funds to pursue larger projects, completely changing the R&D portfolio management process.

Global group of identical companies

This global group produced the same product and distributed it through the same or very similar channels but operated across a number of countries.

The control was divested into those regions in order to allow the regions to organise and respond to the various cultural differences.

Where it made sense to perform a function centrally, this was done. R&D was determined to be largely region agnostic and the benefit of pooling of funds was pursued. Compliance and risk was centralised in order to reduce headcount.

Deciding which role the corporate centre should play

Working through the three key questions and considering the factors below should assist in determining which role the corporate centre should play in each function, business unit or company.

Delegate or do?

Do any functions generate more value by being centralised (benefits of scale, concentration of capability)?

Are functions being duplicated within the organisation presently that may be better executed centrally (research and development, environmental affairs, audit)?

Do any functions lose value by being centralised (large cultural differences due to company history or geographic separation, loss of customer centricity)?

Must any functions be centralised due to high risk profile of that function in this organisation (marketing and shareholder communications in a company which is cross-listed)?

Are any critical functions being poorly executed as they are of low tactical or operational significance but have high strategic significance (research and development, innovation)?

Business unit variation

How do individual business units currently impact on the performance of other functions in the company?

Are there differentiated value targets for each business unit, based on an understanding of their full potential?

Which business units require a disproportionate amount of caretaking and support relative to their output and value?

How is each business unit’s performance benchmarking against the competition in product quality, product innovation, distribution, operational efficiencies and cost?

External Factors

In what ways do we expect our industry’s competitive dynamics to change in the short term?

What are the technology and consumer trends that will impact on the business and drive growth in the next three years?

What will it take?

How do we size the selected functions within the corporate centre?

What are the opportunities to leverage resources?

What leadership and management model components or attributes will drive the transformation?

How big is the gap between the current model and the proposed model?

How do you manage the transition and define new operating practices?

Have the expected benefits of change been documented so that they can be managed through a structured benefits realisation process?


Now let's start with Strategic Business Unit (SBUs)

Strategic business units work on the principle of micromanagement. What if you have 10 different tasks in a day, and all 10 of them are important? You will divide the tasks and then perform each of them separately. This is the exact reason behind converting a product / brand into a SBU or to make them part of a separate SBU. Strategic Business Units are Important due to many reasons, each of which is explained below in the article.

Why Strategic Business Units are Important?

1) SBU’s make you Organized

The first principle of time management is to get organized. Similarly, one of the first things you gotta do is to see your organization clearly. And that can happen only if you are organized. If one of your marketing managers is handling 3–4 different products, then definitely he is gonna get confused with operating all of them.

The strategies might be hazy, there will be no time for creativity or innovation and all the time will be spent in just handling the existing work rather then expansion. Thus the first thing SBU’s do is they help you get organized.

2) Help in Focus

Naturally once you are organized, you can micro manage things. Just take an example of large companies like HUL and P&G (the best examples of multi product organizations). Strategic Business Units are Important because they help managers be focused on the different factors within the same organization. Each product or business unit has various requirements and these requirements can be managed efficiently by giving them their individual attention.

They have at least 30 different products at all times. Each of them requiring separate manpower, strategies, expenses and returns. Thus this needs micro managing of the highest aspect. With SBU’s another factor which is very important is FOCUS. Micro managing helps you focus on each and every product separately.

3) STP

The success of a product depends on its segmentation targeting and positioning. Each of these processes requires being continuously in touch with the market, receiving feedback, identifying your target market, targeting them and then positioning accordingly.

Thus these are humongous tasks if you have to do them for each and every product and if you are handling more than 5 products at any time. Therefore dividing products into SBU’s helps you stay in touch of the market separately for each and every product. Thus a marketing manager / sales manager may be assigned one product at a time and will be responsible for that product itself. Thereby he may give valuable contribution in maintaining the STP of a product in the target market.

4) Investments

The best reference for investments in SBU’s can be the BCG matrix. In the BCG matrix, the SBU’s are divided as per their market share and the market growth rate. Thus depending on the BCG matrix, the type of investments which each product needs can be decided.

This is possible only if each product is treated as a completely different SBU. This SBU may be a composition of one category of product (such as shampoo) or in case of larger organizations it may even be one single type of product (such as LED or LCD televisions)

5) Decision making

The better performing businesses are supposed to handle the load of any newly starting business or any business which is undergoing a slump. However, if one of these revenue generating SBU’s get hit, how would you manage the cash crunch? Well these are decisions which need to be made and for them you need to have the figures for each type of product / sbu.

Thus SBU”s also propogate the correct decision making. These decisions can be at the micro level (as explained above – managing STP, strategies) or they can be at the macro level (investments from the corporate fund, whether to continue investing?).

6) Profitability

By micromanaging each and every product and dividing it into SBU’s, we can obtain a holistic view of the organization. This view is also used in preparing the financial statements as well as to keep tabs on the investments and returns for the organization from each SBU. Thus the overall profitability of the firm can be decided. Ultimately Strategic Business Units are Important because they contribute to better profitability of the organization.

Now let's come back to University Medical Center of Southern Nevada

In recent years, University Medical Center (UMC) has experienced a rapid financial transformation, shedding its negative reputation for heavy reliance on Nevada taxpayers through the implementation of sound strategies to ensure the hospital’s future viability while promoting improved quality of care. UMC now stands as an example of financial stability while continuing to provide community members with the state’s highest level of care and a diverse range of exclusive, life-saving services.

UMC has been part of the fabric of Southern Nevada since 1931, growing from its humble beginnings as a 20-bed hospital staffed by only one doctor and one nurse taking care of the workers from the Boulder Dam. While UMC has earned its reputation for providing the highest level of care in Nevada, the hospital historically depended solely on taxpayer dollars to support its mission to care for the community, with this figure growing close to $90 million per year during its peak.

In 2014, UMC realized an operating loss just shy of $100 million, but in just two short years, the hospital’s balance sheet now tells an entirely different story. As a result of the guidance from UMC’s dedicated Governing Board and the collaborative efforts of UMC’s entire team, including new leadership in many key areas, the hospital finished 2016 with an operating income of more than $35 million, representing a turnaround of nearly $133 million.

While just a few years ago, UMC faced the reality of eliminating services and laying off employees, the hospital is now well-positioned for future growth. UMC’s success is truly a team effort, with valuable contributions coming from new leaders who joined the hospital during the past two years amid trying financial conditions, in addition to the many longtime employees who continue to deliver or support the high-quality care community members have come to expect from UMC. The hospital has also experienced a renewed level of support from community physicians, including many surgeons who refer their patients to UMC, trusting the hospital to deliver quality care to their patients.

Guided by a Governing Board comprised of industry experts and a handpicked team of senior hospital leaders, UMC streamlined its services, reorganized its workforce, renegotiated costly contracts, invested in technology and capital and utilized the finely honed business acumen of its team members to ensure taxpayer dollars were spent wisely on quality patient care.

A variety of strategic endeavors contributed to UMC’s financial success, including a renewed focus on increasing the number of elective surgical procedures performed at the hospital. UMC achieved significant growth in elective procedures by bolstering its physician engagement efforts and meeting the unique needs of clinicians and their patients. This included the development of the UMC Robotic Surgery Program, which provides physicians and patients with access to cutting-edge surgical technology designed to promote improved medical outcomes, faster recovery and reduced hospital stays.

As a result of its new strategic direction, UMC saw an operating margin of 5.9 percent in 2016.

With a positive operating margin, UMC has been able to focus its attention on reinvesting money back into the capital infrastructure of the campus. UMC invested close to $21 million in 2016 on building renovations, IT infrastructure, surgical equipment and new patient beds. In 2017, UMC will spend another $31 million on a modernized nurse call system, ambulatory clinic renovations, the most advanced MRI technology, an Emergency Department expansion and the substantial growth of three new Ambulatory Care Clinics.

In addition, the hospital recently formed a strategic partnership with the UNLV School of Medicine to deliver the region’s top academic medicine in Las Vegas.

UMC has also made significant improvements to its culture and employee morale while developing a new framework for promoting positive and meaningful interactions with patients, visitors and fellow colleagues. As a result of the direction provided by this framework, known as ICARE4U, UMC now offers a more collaborative, unified team driven by a shared goal of providing community members with, not only high-quality care, but higher levels of service and compassion.

UMC is now thriving with unprecedented quality and performance improvement, historic financial success, greater physician alignment and loyalty, state-of-the-art advances in technology and enhanced employee engagement, all with a focus on improved patient experience and community outreach.

While UMC once faced financial instability, the hospital’s \ turnaround and commitment to innovation hold the promise of continued growth and an extraordinarily bright future for Southern Nevada’s community hospital.

hope this answers all the question
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