As rising demand for services begins to clash with increasingly tight financial constraints, the NHS must plan now for impending 2011 funding restrictions.
To maintain the same level of services, there is the requirement to significantly drive down costs and in doing so, it is essential to consider the following areas:
Reassess strategic priorities
The NHS must reassess all major investments. The key questions decision makers need to ask are:
- Can we afford to do it?
- Can we afford not to do it?
- Does income outweigh costs, now and in the future?
- Can we do the same thing differently?
This may involve unpicking a lot of work including sunk costs. However, if the outlook has changed, why continue to follow a finance plan that is not fit for purpose?
Stop loss making activities
There is no sense in continuing to put money into loss making activities. Some may be unavoidable, but they could be downsized to reduce the impact. There will be too many other pressures without the own goal of continuing to plough money into a bottomless pit. Needless costs must be eliminated.
There are a number of reasons to innovate, mainly based on the fact that change is usually easier when it is imperative (although QIPP hopes to help organisations inject pace and momentum). In conducting innovative activities, the following scenarios are likely to arise:
1. If the activity is mission critical
New or different ways of achieving the desired outcomes will have to be established. Creating joint ventures can provide either the finance and/or the expertise to be able to run things differently.
2. If an opportunity exists to make a profit by exploiting a gap in the market
Speed of decision and response is key to exploiting current conditions. Setting something up quickly will take advantage of the opportunity now. Gaps in the market will disappear quickly.
3. If you are able to continually refresh what you do in order to remain profitable
In most successful businesses, innovation is key to continued profitability. There is also the thrill of being at the cutting edge, allowing staff and management to not only be remunerated better because the organisation is performing better, but also to feel proud of their achievements.
The customer is king
Many businesses would fail if the majority of time was not spent reviewing quality and services to customers in a hands-on way. The NHS should turn theory into practice and really look to how it can become demonstrably more customer focused, not just in terms of reducing complaints but improving the customer experience all round. Happier customers lead to less complaints, a reduced administrative burden and a reduction in costs.
Renegotiate everything you can
It may be possible for NHS organisations to renegotiate the terms of even the longest term contracts, particularly with larger national businesses that are more likely to take a much longer term view. Suppliers will be well aware that demand drives price and would not view such a request as a surprise in the midst of the economic climate.
Sweat the assets
Ensure that assets are used in the most efficient way possible. Crucial decisions can be modelled by using return on capital employed, a key indicator of the efficiency and capital cost of running a business (balancing longevity with cost effectiveness). Are you making the most of your assets? Where are you in the value proposition - would it be more efficient to replace frequently used equipment sooner rather than spend more trying to keep it for a longer period of time?
Maintain a good working relationship with funding providers (e.g. commercial lenders for foundation trusts and effectively the Department of Health and strategic health authorities for the rest of the NHS). The more open you are, the more willing they will be to help in the future in terms of cashflow and working capital financing.
Take decisions immediately
By waiting to make decisions the market will determine things for you. Too often the command and control structures of large organisations get in the way of real decisions and too much is confused and lost in the interests of supposed good governance.
Reward those who contribute to solving the problem
The people who are on message and work tirelessly for your cause are the ones you need to ensure are looked after and remain within the organisation. They are prepared to go the extra mile and you need to look after them in turn or they will take their talent, enthusiasm and drive elsewhere. Those who don’t work for you and the cause also need to be addressed in terms of their motivation and careers.
Giles Newman is a partner in the healthcare financial advisory team at accountants and business advisers, Grant Thornton UK LLP. email@example.com