Finance transformation case study

A large healthcare system redefines their strategic identity to stay competitive

 

How a strategic plan led to improved operating margins and $350M in long term growth

 

Client: A large California healthcare system
Our Role: PwC used analytics to help our client understand consumer needs and preferences in the market and bring to light the need to interact with unique customer segments differently.
Industry: Health Services
Services: Fit for Growth, Finance Transformation, Capabilities-driven strategy

 

Situation

How do you address declining operating margins in the midst of complex market dynamics?

Our client, a large and successful incumbent healthcare system in California, saw the writing on the wall. Over the past 10 years, costs had increased, revenue had decreased, competition had intensified and digital technology had transformed the relationship between the patient and the provider. It wasn’t always like this. For decades, providers competed against one another on a relatively level playing field, and the basis for competition was the same-- capacity, specialties, location and outreach. Now, incumbents were facing pressure from entirely new players in the technology sector, whose reach is not limited by geography. Our client looked at the market and their financials and saw that change was inevitable, and that they needed to take the necessary steps to get out ahead of the problem. They wanted to avoid having to transform from a position of weakness, so the client began work on a strategic plan focused on improved operating margins and profitable long term growth to position themselves to compete in a highly fluid environment. 

Solution

PwC used analytics to help create market focus and drive strategic choices

Being the leader in customer experience had always been the client’s unique brand in the market, but they needed to stand out to grow profitably. Other incumbents were beginning to claim this space, and the client needed a way to create unique bonds with the consumer. Using analytics, we were able to help the client understand consumer needs and preferences in the market and bring to light the need to interact with unique customer segments differently. Knowing this, the client was able to develop a vision for how to personalize the care experience and take a broader view of their value chain and customer interaction points. Then, we looked at the implications of that differentiated positioning, and the unique choices they would need to make to maintain and strengthen that identity. What could be de-emphasized in order to put more focus on our clients core differentiated value in the market to support the investment in the strategy? (For instance, is it really necessary to have a world-class Finance function or is an average Finance function acceptable?) And finally, what long term financial plan would be needed to support their strategic identity?

“The healthcare provider market has never been more challenging, so cost and strategic models need to change. Our client understood this. They did the hard work of determining their strategic identity and made the tough decisions to align costs and investment priorities with their long term strategy.”

Mike Cohen, PwC Partner

Defining a go-forward service portfolio and investment profile

Once we had clarity on the client’s strategic identity, how they wanted to be known in the market, things started to fall into place. This helped define their service offerings and the way they connected with their consumers. Together, we used the strategic identity as the lens through which to make tough choices on priorities, investment levels and service offerings. Working with the client, it became clear that we needed to focus on the following priorities: 

  • Repositioning the client’s clinical portfolio to build leading offerings in primary care and emerging venues of care which support affordable access points for patients while rationalizing hospital-based care.
  • Shifting investments and strategic focus to growth in new and adjacent ventures.
  • Creating an affordable cost structure to achieve and maintain top quartile efficiency and customer affordability.
  • Extending the focus on growth to develop unique market and industry-facing bundles which combine core, adjacent and new offerings.

Driving cost reduction, buy-in and long-term growth

Identifying the areas where costs can be eliminated takes work, but is relatively straightforward. What’s hard, particularly when you’re currently successful, is convincing the various stakeholders that the reduction is necessary so far in advance of a clear imperative.  Why put yourself through this? Our client ran into these headwinds, and we helped them explain to the organization that performing a transformation before you’re forced to is the preferred route. It gives you much more strategic flexibility and puts you on a better competitive footing. People began to understand that the cost reductions were a way to enable investment in their strategic identity and stay ahead of the curve. 

These reduction-funded investments would in turn drive incremental revenue as opposed to just continuing down the path of eroding margins. Once this became clear, there was widespread acceptance. We began working with all stakeholders in the health system to create a long range financial plan that would fund strategic priorities through reductions in administrative and support efficiencies, enabling new growth through consumer or experience-oriented products and services. Many of these growth initiatives would be in partnership with other players in the healthcare and technology industries to build out the system’s value chain. The client also decided to uplevel the organization’s overall digital acumen so that everyone could participate and contribute to the strategic transformation.

Results

$100M in near term cost efficiencies and a path to $350M incremental growth in five years

Every long journey starts with a single step. For our client that first step was clearly understanding their strategic identity and the accompanying choices. Here’s what happened:

  • With an understanding of the market, the client was able to zero-in on a strategic identity that it wanted to be known for in its market.
  • The case for change was substantiated and served as a call to action for transformation change across the organization.
  • PwC coached teams for 20+ administrative and support services functions to help design initiatives to reach the target cost saving opportunities identified while redesigning the functions to support the strategy.
  • The executive team was aligned on the need for a differentiated strategic identity and began to rally around it.
  • PwC helped the client create a long range financial plan that will likely generate $350M in incremental revenue over five years to help close the operating margin gap. $100M to come from administrative and support efficiencies that will be channeled into generating $250M in new growth through new products and services.
  • An initial set of growth ideas were identified in new and adjacent areas to support the strategic market identity and identify a new and expanded value chain. This included exploring third-party technology partnerships, the increased use of digital care delivery and employee wellness initiatives through employers and payers.

Our client leveraged their normal strategy refresh cycle to step back and evaluate how the market was evolving and thought hard about their strategic identity and basis for competition. What resulted was a plan for long term financial growth and an opportunity to benefit from evolving market realities.

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Mike Cohen

Mike Cohen

Partner, PwC US

Alena Taylor

Alena Taylor

Director, PwC US

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Reggie Walker

Reggie Walker

Partner, Global Salesforce Alliance and Competency Leader, PwC US